Dividend transfer plan (DTP) is an ideal way to grow and preserve dividends.
Do you want to protect and earn higher returns on the money which an equity fund has declared in the form of a dividend? Most fund houses offer a plan - dividend transfer plan (DTP) that can help you do just that.
How to make use of DTP?
Suppose your client has invested in a cash or liquid fund and wants to grow his earnings from the dividends. You can advise him/her to opt for a DTP from a cash fund to an equity fund. The cash fund is called ‘source fund’ and the equity fund is called ‘target fund’.
Similarly, if your client wants to preserve and earn steady returns from the dividends received from an equity fund you can opt for a DTP from equity fund to a cash fund. The advantage of this is that your clients will earn more than what they would have earned by parking this money in a bank savings account.
What is the minimum amount you can transfer through DTP?
The minimum dividend amount which can be transferred to the target scheme differs across fund houses. For instance, HDFC Mutual Fund allows dividend transfers if the dividend amount is Rs 1000 or above. If the dividend amount is less, the amount is reinvested in the source scheme. DSP BlackRock allows a minimum of Rs 500 or above to be transferred to the target scheme.
Fund houses don’t charge any exit load for using this facility. You can find the list of schemes which are eligible for this facility on the AMCs websites. Needless to say, your clients can only opt for this facility if they have opted for dividend plan in the source scheme.
The dividend amount is transferred the next day of the target dividend date and equivalent units are allotted to at the prevailing NAV of the target scheme.
Can you opt out of DTP or modify it?
You can opt out of this facility by submitting a request to the concerned fund house. You can also modify the DTP later. While opting out you need to either opt for dividend reinvestment or dividend payout.