While the schemes with dividend and bonus option are perfectly legitimate, what is inviting criticism is the practice of advance intimation of expected payout, writes AMFI to fund houses.
AMFI has shot off a letter to AMC CEOs asking them to avoid the practice of intimating distributors and investors in advance about dividend and bonus announcements. The industry body has said that AMCs should follow the rule in its true spirit. This has come in the wake of a sudden spurt in the demand of dividend and bonus option in mutual funds.
Cafemutual was the first to report that JM Financial Mutual Fund had introduced a bonus option in its JM Arbitrage Advantage Fund. Read here. The fund house is said to have collected Rs. 5,800 crore in less than a week’s time.
AMFI has reportedly written, “While the scheme with dividend and bonus option are perfectly legitimate in mutual fund products, what is inviting criticism is the practice of advance intimation of expected payout to the potential investor and distributors.”
It also mentions that such instances are engaging the attention of SEBI.
“AMFI would like all members to follow regulation in letter and spirit. AMFI would also not like to advocate any kind of prior intimation to investors on such products which is in contravention of AMFI code of conduct and against the spirit of regulation,” says the AMFI letter.
Post the changes in tax structure of debt funds, arbitrage funds gained popularity because of their tax efficiency. Few fund houses like JM Financial and Religare Invesco introduced an annual bonus option in their arbitrage funds.
