When I buy NiftyBEES ETF, it means I am getting exposure to the Top 50 companies which are part of the index. Now these companies announce dividends and they are reinvested into the ETF. Because of this I do not realize any dividends in my account.
In this situation who is paying the tax on the dividends? Is the AMC responsible for NiftyBEES paying the taxes?
“No, mutual funds do not pay taxes. Until around two years back, there used to be a dividend distribution tax that was levied on all the dividends paid by companies to any type of investor, be it an individual investor or mutual funds. So for an investor holding a company stock that is giving any dividend, the dividend distribution tax used to be deducted by the company and deposited. And dividend in the hand of the investor was tax-free. However, now it has changed.”
But a mutual fund is a tax-free entity. They don’t even pay any long-term capital gains or short-term capital gains tax.
On the dividend declared by the companies, AMC is not responsible for paying any taxes. When the dividend is reinvested in ETFs you get units against the same. When you sell those units, you will be liable to pay Capital Gains Tax. Indirectly, you are paying the tax on dividends.
In this case, I believe that it is much more efficient because now I will be paying Capital gains tax instead of tax as per my slab on the dividends. Furthermore, I believe it would be of significance only when the dividends run into few lakhs and the portfolio size is significantly larger.
you should factor Expense ratio as well. And some times they can be absurd hikes like IIFL Nifty ELSS did from 0.27% to 0.75%
just saying, ER is on AUM continuously paid periodically,
while tax is one-time only on gains.
For the very same reason I have sold my equity every time there is a ATH and on falls I have accumulated niftybees. Makes much more sense because most of the time nifty will outperform our portfolio and also dividend doesn’t become taxable.