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Mutual Fund Dividend Transfer Option

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MUTUAL funds offer investors the facility of transfer of dividend earned in their schemes, which can be utilised to achieve some specific objectives. There are some specific conditions related to this facility that will need to be fulfilled with the fund offering this facility and, hence, these conditions need some special attention. The idea should be to ensure that the money earned as dividend is allocated to right areas so that the investment goals are achieved. Here is a look at the issue and the manner in which this will actually work.

Manner of working:

In this facility, an investor gives instructions to the mutual fund for transferring the dividends earned in a particular scheme to some other scheme. This will then be done automatically and will enable investors to ensure that the amount that they want to invest in a particular area is actually being implemented. It will also reduce the effort on the part of investors, as they do not have to act and undertake the same activity on their own. So, investors should look for this facility in the funds where they have investments.

Coverage:

The first point to check for an investor is whether the facility is actually available for their particular investment.

This will involve undertaking some basic checks to see whether the fund that they have an investment in is covered by the facility and the kind of schemes through which the transfer can actually take place. Unless this is present, there is no question of moving ahead on the path of planning their investments.


Source and target schemes:

There are two terms that will be important from the point of view of an investor. One is the source scheme, which is nothing but the fund where the dividend is earned, and then this is the source of the amount involved in the transfer.


The other is the target fund, which is where the dividend amount is supposed to go. The idea behind implementation of the whole process should be that the dividends that are earned in equity funds are actually transferred out to a safe area, preferably debt-oriented funds. This will ensure that the gains from the initial investment are being kept aside and are being protected. If one looks carefully at the facility that is provided by the mutual funds, then they will also allow the transfer from an equity fund to a debt fund. Other conditions: It is also pertinent for an investor to check whether there are any additional conditions that need to be fulfilled for the facility to be used like the manner in which the units have to be held. So the condition could state that only when the units are not in the demat form would this facility be available. This could be on account of the fact that the presence of the units in demat form might not give the fund the right to transfer the dividend into a new fund in the form of new units, but this might be possible in the traditional way of holding of the fund. Similarly, in other conditions, there could be some other reasons or conditions and these would need to be watched carefully to see whether they act as a deterrent for the individual.

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