SEBI has sent an email to fund houses asking if they have resorted to dividend stripping practices. The regulator has asked AMCs to revert by January 14.
SEBI has reportedly sent emails to fund houses after an article on dividend stripping in Mint newspaper.
The news has been confirmed by the senior fund official who has received this email.
SEBI has reportedly written, “This is reference to the article on dividend stripping attached with this mail wherein it is reported that mutual fund houses are resorting in practice of dividend stripping by informally communicating to investors the record date at least three months in advance to help them carry out tax planning through dividend stripping. You are advised to confirm whether your AMC is resorting to such practices, if any, by 14 January 2016.”
Last year, a few schemes of some fund houses witnessed a massive spurt in their AUMs after declaring dividend. Experts say that these inflows came from large investors like corporates and HNIs. Typically, these investors did a dividend stripping for tax planning. The dividend amount is tax free in equity funds. In addition, SEBI rules say that dividend should not be subject to exit load.
Earlier, a few fund houses had introduced bonus options in their schemes. As a result, a lot of corporates and HNIs did bonus stripping. To stop this practice, AMFI has issued a best practices guidelines in which it has asked fund houses to discontinue offering bonus options in their schemes.
