The financial market regulator Securities & Exchange Board of India (SEBI) issued a circular on November 25 requesting that mutual fund houses pay dividends within seven days of the record date. For the purpose of paying dividends, it additionally stipulated that the record date should be two working days after the date of a public notice.
The fund houses are instructed to pay out the proceeds in the event of a redemption or repurchase of units within three working days. Investors in schemes where at least 80% of the capital is invested in foreign securities must be paid within five working days of the date of redemption or repurchase.
According to SEBI, “the Association of Mutual Funds in India, in cooperation with SEBI, will publish a list of extraordinary circumstances for schemes that are unable to transmit redemption or repurchase proceeds to investors in a timely manner, together with the applicable time range for such transfers to unitholders. Within 30 days of the release of this circular, the list must be publicised.”
The fund house is required to pay interest at a rate of 15% per year in addition to the dividend or redemption payout if it fails to pay dividend, redemption, or buyback payment within the allotted time frame. The asset management company will be responsible for paying this interest. Such investors must also be informed by the mutual fund house of the specifics of dividend or redemption payouts in addition to interest. Additionally, the fund houses are instructed to submit such incidents in the format specified by SEBI.
On November 15, SEBI had announced modifications to the rules governing mutual funds in relation to these factors. “In the past, fund houses had the option of paying dividends within 30 days and redemption money within 10 days. The regulator may have shortened this time period because transactions are now processed using digital means, which makes them much faster. According to a senior fund official who is not permitted to speak with the media, nowadays the majority of fund houses pay the proceeds within the timelines revised today.