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.