1 Dividend Maintenance
This topic provides information on dividend maintenance.
A fund or an AMC normally shares a portion of its profits with the unit holders by declaring a dividend. By way of receiving a dividend, the unit holders receive their share of the profits, as monetary returns or as increased stock in the funds of the AMC.
Typically, an AMC declares dividends at a regular frequency, depending upon the type of fund and its performance. For money market funds, for instance, there may be daily declaration of dividends. For equity funds, dividends may be declared once a year or every quarter.
Unit holders can receive dividends as payment or choose to reinvest the dividend in the same fund or different funds.
A few important terms must be understood clearly about dividends:
Record Date (Freeze Holdings Date)
When a dividend is declared, a record date is also announced. Any unit holders that hold shares of the company as on this announced record date are eligible to receive dividend.
The holdings balance of the unit holder that is considered for eligibility for dividend on the record date could be the entire holdings including provisional units and blocked units, or it could be only the confirmed balance as on the record date, depending upon the specification made for the fund. The non permissible income (NPI) portion of the earnings is identified if NPI is applicable for the fund.
Book Closing Dates
When a dividend is declared, the company also identifies a period during which no transactions will be accepted and the financial books will be closed. During this period, an inventory of the holdings of the unit holders is taken, and those that are eligible to receive dividend based on their holdings on the record date are identified.
Directors Meeting
In an AMC, the decision to declare dividends is made at a meeting of the board of directors of the AMC. The dividend is also ratified at this meeting.
Cash Dividend
In some funds, unit holders receive their dividends as monetary returns, which can then be reinvested (if desired) in any of the funds of the AMC.
Stock Dividend
In some funds, unit holders receive dividend in the form of a proportionate number of units (holdings), rather than monetary returns. Such dividend always results in an increase in the holdings balance of the investor, and is called a stock dividend. It is exempted from tax. The dividend units are always reinvested into the same fund, for the same unit holder.
The dividend is usually declared as a ratio. For instance, if the declared stock dividend is 2:3, then, for every two units eligible for dividend on the freeze holdings date (from a fund), the unit holder receives 3 units as dividend, which will be reinvested (as subscription transactions in units mode) into the same fund for the unit holder.
Regular Dividend
Dividends are declared by the company / AMC at a frequency that is decided by the directors. Such dividends are called regular dividends.
Regular dividends are only generated by the system based on the processing frequency maintained at the fund corporate actions level.
The board of directors may decide to skip a regular dividend, if deemed necessary, when they feel that the profits gained do not justify a dividend declaration.
Interim Dividend
An AMC / company may decide to declare an ad-hoc dividend independent of the regular frequency, for the purpose of distributing the profits gained during a period in which the fund has done exceptionally well. This is called an interim dividend.
Dividend Declaration Frequency and Dividend Payment Frequency
This is the frequency at which the board of directors decides to declare dividend for a fund. The board may not actually decide to process and pay out dividends when they are declared, but may decide on a different frequency for payment. The frequency at which the board of directors decides to process and pay out dividends that have been declared is known as the Dividend Payment Frequency.
Example:
Let us suppose that for the Malcolm Green Income Fund, the board of directors for the fund decides to declare dividend every quarter, and the first declaration is made on 24th January 2002. The board of directors also decides to process and pay out dividend to its shareholders twice each year.
The declaration and payment would occur in the following pattern:
Table 1-1 Dividend Declaration details
Dividend Declaration Dates | Dividend Number | Dividend Payment Dates | Payment Number |
---|---|---|---|
24th January 2002 | 0 | ||
24th April 2002 | 1 | ||
24th July 2002 | 2 | 24th July 2002 | 0 |
24th October 2002 | 3 | ||
24th January 2003 | 4 | 24th January 2003 | 1 |
- Dividend Processing in the System
This topic provides information on the Dividend Processing in the System. - Dividend Processing Automation
This topic provides information on the Dividend Processing automation. - Dividend Processing for NPI Funds
This topic provides information on the Dividend Processing for NPI Funds. - Dividend Processing for Beneficiaries
This topic provides information on the Dividend Processing for Beneficiaries. - Process Fund Dividend Detail
This topic provides the systematic instructions to maintain the dividend declaration details for a fund, for either a cash dividend or a stock dividend. - Fund Dividend Summary
This topic provides the systematic instructions to perform the basic operations on the selected records. - Dividend Skipping
This topic provides information about the dividend skipping details. - Perform FCIS Process Dividend Payment
This topic provides the systematic instructions to initiate the processing for a declared dividend. - Process Dividend Reinvestments
This topic provides the systematic instructions to trigger the processing of any reinvestment transactions resulting out of dividend processing, for both cash and stock dividends. - Process Mass Amendment Detail
This topic provides the systematic instructions to reverse a dividend that has been processed. - Mass Amendment Summary
This topic provides the systematic instructions to perform the basic operations on the selected records. - Process Selected UH Detail
This topic provides information on Dividend Reversal / Amendment for selected unit holders. - Selected UH Summary
This topic provides the systematic instructions to perform the basic operations on the selected records. - Perform Mass Reprocess Detail
This topic provides the systematic instructions to perform reprocessing multiple dividends for a combination of unitholder and fund. - Mass Reprocess Summary
This topic provides the systematic instructions to perform the basic operations on the selected records. - Process Mock Dividend Detail
This topic provides the systematic instructions to perform mock processing of dividends, and obtain projections of dividend payment. - Mock Dividend Summary
This topic provides the systematic instructions to perform the basic operations on the selected records. - Process Mock Dividend
This topic provides the systematic instructions to execute the process after a mock dividend record has been authorized. - Mock Processing for Accumulation
This topic provides information on Mock Processing for accumulation. - Mock Processing for Reversal of Accumulation
This topic provides information on Mock Processing for Reversal of Accumulation. - G1-G2 Conversion Details
This topic provides instructions to maintain G1-G2 conversion details. - Process Dividend Equalization Adjustment
This topic provides the systematic instructions to enter additional adjustments for the number of G1 and G2 units that a Unitholder holds in a fund. - Dividend Equalization Adjustment Summary
This topic provides the systematic instructions to perform the basic operations on the selected records. - Process Cheque Printing
This topic provides the systematic instructions to initiate the printing of checks for any of the payments. - Process Data Extraction
This topic provides the systematic instructions to extract the payment information. - Update Cheque Status
This topic provides the systematic instructions to monitor and update the status of cheques issued for dividend payments as well as redemption and fee/incentive payments in the system. - Process Dividend Interface
This topic provides the systematic instructions to define dividend interface log.