Securities & Exchange Board of India (SEBI), the financial market regulator, issued a circular on November 25 asking the mutual fund houses to pay the dividends within seven days from the record date. It further directed that the record date should be two working days from the date of a public notice, for the purpose of payment of dividend.
In case of redemption or repurchase of units, the fund houses are told to pay out the proceeds within three working days. In the case of schemes investing at least 80 percent of the money in securities overseas, upon such redemption or repurchase, the investors should be paid within five working days from the date of redemption.
“Association of Mutual Funds in India, in consultation with SEBI, shall publish a list of exceptional circumstances for schemes unable to transfer redemption or repurchase proceeds to investors within time, along with applicable time frame for transfer of redemption or repurchase proceeds to the unitholders in such exceptional circumstances. The list shall be published within 30 days of issuance of this circular,” wrote SEBI.
If the fund house fails to pay dividend or redemption or repurchase payout within the stipulated time period then the fund house is liable to pay interest at the rate of 15 percent per annum along with the payout of dividend or redemption. This interest will be borne by the asset management company. The mutual fund house also needs to inform such investors about the details of the redemption or dividend payouts along with interest. The fund houses are also told to report such incidences to SEBI in a prescribed format.SEBI had notified the changes to the mutual fund regulations around these aspects on November 15. “Earlier the fund houses were allowed to pay dividend within 30 days and the redemption proceeds were allowed to be paid in 10 days. Now the transactions are processed much faster using digital means and hence the regulator may have curtailed this time period. Nowadays most fund houses pay the proceeds within the time frames revised today,” says a senior fund official who is not allowed to speak with the media.