NAV of mutual fund reduces as and when dividends are issued

This reduction does not happen for the growth version of the same scheme since no dividends are declared


If I were to buy mutual fund (MF) units say at around 2 pm, do I get units at the previous day’s closing net asset value (NAV) price or today’s price which will be decided later in the day?

—Nitin Jain

In most cases, when a transaction to buy MF units is placed at 2 pm, the applicable NAV for the transaction would be the one declared at the end of the day of transaction. There are some exceptions to this, related to transaction sizes greater than Rs.2 lakh or if it concerns liquid funds, but they typically do not apply to most retail transactions. In such cases, date of realisation of funds by the MF company is taken into account. The applicable NAV date in such cases would be the same day as fund realisation for non-liquid fund transactions, and the previous day’s NAV for liquid funds.

How can I shift from dividend option to a growth option?

—Karunesh Walia

Although dividend and growth options of a scheme belong to a single MF, internally the companies treat them with different codes. This is because dividend and growth options of a scheme carry different NAVs. As and when dividends are issued from the scheme under the dividend option, the NAV of the fund reduces proportionally.

This reduction does not happen for the growth version of the same scheme since no dividends are declared. So, as an investor, if you want to move from one option to another, you would need to submit a switch request but this could have exit load and taxation consequences.

What are the additional know-your-customer (KYC) requirement from MF investors? What is needed to be compliant with Foreign Account Tax Compliance Act (Fatca)?

—Chris Joseph

From November 2015, MF companies in India are required to collect a few extra details from customers. These details include gross annual income, source of income, occupation, and whether the investor is a politically exposed person or not. This is collected individually by asset management companies (AMCs) along with application form data and are not part of the standard form. Fatca data is collected at the level of the AMC. This data is about one’s tax residency.

For most investors in India, this will be a simple procedure of declaring oneself as an Indian tax-paying resident who does not pay or owe taxes to another country. Those who have tax identification numbers abroad and are obligated to pay taxes there (and in India), they would be required to provide that information (tax identification belonging to that country and so on). To comply, you can either visit MF companies’ websites where you have investments or those of Computer Age Management Services Pvt. Ltd (Cams) and Karvy Computershare Pvt. Ltd and provide your folio details along with this information. It needs to get done by the end of this year.

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