The mutual fund industry in India has got itself into a tangle on the issue of dividends many a time. Monthly income plans (MIPs) with monthly dividend frequencies have skipped their dividends, prompting the regulator to ask for a disclaimer stating that MIPs could skip monthly dividends. Unusually large dividend declarations with their tax-free nature have been used to create a capital loss that is used to set off capital gains accrued elsewhere, prompting income tax authorities to change the rules for factoring such a loss and ensuring the regulator comes in with a defined process for dividend declarations. The latest discussion has centred on declaration of monthly dividends in equity-oriented funds and their sustainability.
Mutual funds have been marketing monthly dividend schemes in such a way that investors may assume that the dividends will continue and they can depend on those to meet their monthly requirements.