Walter Bagehot once said, “The lesser money lying idle, the greater is the dividend.” And what better if this dividend can be further invested to make more money. Dividend Transfer Plan runs on this philosophy.
Certain mutual fund houses offer a Dividend Transfer Plan which allows unit holders to opt for an automatic reinvestment of the dividend earned by them into a different scheme. This facility is subject to minimum and maximum amount limitations and available only on certain eligible schemes. This facility can be used to move the dividend earned from high to low risk schemes and vice-versa.
For risk averse investors, the dividend earned from low risk schemes can be transferred to an equity oriented scheme. This aims to ensure the safety of the capital while providing an opportunity to earn good returns from equity investments. On the other hand, investors who are already invested in the equity market can choose to transfer the dividends earned to a low risk fund to book profits.
One major reason why a Dividend Transfer Plan could be good for you is that when markets become expensive, DTP gives you the option to reduce exposure from equity and transfer to debt.
To start DTP, all you have to do is fill in basic information stating the name of the scheme you wish to move the dividend out from as well the one you wish to invest in. The rest will automate and you can then relax as the transfer process will diligently continue till the date specified by you.
Important Note: In case of any Dividend option, unlike share price of the Company, the Net Asset Value (NAV) of the scheme will fall to the extent of dividend payment and statutory levy, if any as dividend is paid from the NAV of the scheme.
Dividend declaration is subject to availability to distributive surplus and approval of trustees.
This article should not be considered as 'investment advice'. We request the Reader to make informed investment decisions and consult their financial advisors to determine the financial implications with respect to investing in Mutual Funds.