Mutual funds are operating within the boundaries set for them with regard to dividend declarations, CVR Rajendran, CEO, Association of Mutual Funds of India, told BusinessLine on Thursday.
Capital loss & NAV
This was in the context of capital market regulator SEBI asking fund houses earlier this week if they were resorting to the practice of dividend stripping in their schemes.
When a fund declares a dividend, the investor essentially pockets the dividend but shows the fall in the net asset value as capital loss. This loss is then set off against real capital gains made elsewhere on other investments to reduce the net tax payable. Rajendran, however, insists that fund houses keep to the rules of dividend declaration on their schemes.
