1.3 Dividend Processing for NPI Funds

This topic provides information on the Dividend Processing for NPI Funds.

As per Shariah laws, the non permissible portion of the dividend earnings (NPI) can not be reinvested. Even if the customer has opted for reinvestment, the NPI portion will either be paid out to the customer or to a fund trust, whichever is applicable, and only the remaining portion will be reinvested.

If NPI is applicable for a fund, during the Freeze Holding Process, system identifies the cleared and uncleared balances separately. The uncleared portion of the dividend will be reinvested.

Tax will be computed on the total balance, if any. If the dividend is not based on components, then apportioned tax for the NPI portion is arrived at as follows:

Tax on NPI = (Total Tax/ Total EPU)* NPI EPU

This amount is deducted from the total NPI amount to arrive at the net NPI amount that is to be paid out to the investor.

While processing reinvestment transactions, system generates separate subscription transactions for cleared and un-cleared portions, if the preference for uncleared balance is Force Re-investment. However, if the IDS option is to be considered, then system will not generate separate reinvestment transactions.

After computation of the NPI portion and the uncleared portion, the Income Distribution options (IDS) specified for the unit holder will be applicable for the remaining dividend amount.