De-jargoned | Record date

De-jargoned | Record date

What is it?

Record date is the date fixed by mutual funds (MFs) on which dividend is said to be declared. Investors whose names are in the MF’s books on that date get dividends.

Announcement date

As per rules, your MF is supposed to make a public announcement within 24 hours of the trustees’ decision to declare dividends. The record date comes five calendar days after that. If the record date is 25 February, then the fund is supposed to advertise the dividend on 20 February, the announcement date. The rules also prescribe the advertisement’s format. For instance, there is a different font size for the disclaimer that net asset values (NAV) fall after dividend declaration.

Dividend stripping

If you buy at an NAV of Rs13 and it goes up to Rs15, the fund will declare a dividend and the NAV will drop. If the NAV drops below Rs13 and you withdraw your units, you will theoretically show a loss on your investment. In reality, you made a profit because dividends are tax-free in your hands. But the capital loss on your principal amount was allowed to be set off against other market gains. Years ago, investors used to indulge in “dividend stripping". They entered a fund a day before a dividend was declared, took the dividend, showed the loss (on paper) and set it off against other profits made in the markets. This resulted in a loss of around Rs5,000 crore to the government. This loophole was plugged. Now, investors, who enter three months before or exit nine months after the record date, can set off their losses against other gains.