SEBI issue 2 new circulars yesterday on riskometers and dividend plans.
1. Change in Riskometer
From Jan 2021 mutual fund riskometers will have 6 levels instead of the 5 earlier. Here are the 6 levels:
Low Risk
Low to Moderate Risk
Moderate Risk
Moderately High Risk
High Risk
Very High Risk
Mutual funds will now review this every month and disclose this along with the month portfolios of schemes.
This is a particularly big problem in mutual funds. I am not aware of how the word “dividend” got attached with investors often think mutual funds, like stocks, issue dividends, which isn’t the case. A mutual fund is a pass-through vehicle, meaning, it takes money from you and invests in stocks, so the question of dividends doesn’t arise.
What mutual funds do when they issue dividends is sell units and give back your own money. Dividend plans of balanced funds were also heavily mis-sold as guaranteed income plans. Post the change in dividend taxation, they became unfavourable leaving investors with money stuck in tax-disadvantaged dividend plans.
Finally, SEBI issued a circular to rename these plans to the following:
Plan
New nomenclature
Dividend Payout
Payout of Income Distribution cum capital withdrawal option
Dividend Re-investment
Reinvestment of Income Distribution cum capital withdrawal option
Dividend Transfer Plan
Transfer of Income Distribution cum capital withdrawal plan
Hopefully, this should make it clear to investors that mutual funds don’t issue dividends.
@nithin am waiting to invest in Zerodha AMC , i believe trustable AMC will be zerodha , i expect something diffrent from normal amc like usa global X fund …
Any ETA of AMC to be launch
Will take some time, we are still awaiting SEBI approvals. COVID has disrupted the timelines Can’t give an ETA even if we want to at this point. Even we are super psyched.
For example, in the case of a resident individual, dividends are taxed at slab rates applicable to the individual, while capital gains are taxed at the following rates, having regard to the nature of the capital asset and period of holding:
applicable slab rates - in case of short term capital assets (other than equity oriented funds)
15% - in case of short term capital assets (equity oriented funds)
10% (without the benefit of cost adjusted for inflation i.e., indexation) - in case of long term capital assets (equity oriented funds) - with exemption up to Rs. 1,00,000.
20% (with the benefit of indexation) - in case of long term capital assets (other than equity oriented funds).
So, in the case of growth variant, the point of taxation would be at the time of sale / redemption (capital gains) whereas in the case of dividend reinvestment variant, the points of taxation would be at the time of receipt of dividend as well as at the time of redemption (capital gains), with the dividend reinvested being considered as part of cost, for the purpose of capital gains.
Can’t give an ETA even if we want to at this point. Even we are super psyched.