Growth option of MF does not pay out dividends, hence NAV is higher

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January 19, 2021 1:15 AM

After the demise of the primary owner, all units are transferred to the nominee at the NAV prevailing on the day of the death of the primary owner.

Gold ETFs like other securities are traded in the secondary market and investors can buy and sell ETF units in the secondary market at any point in time.Gold ETFs like other securities are traded in the secondary market and investors can buy and sell ETF units in the secondary market at any point in time.

I opted for growth option in mutual fund SIP. Why is the dividend reinvest-ed showing zero in the statement?
—U R Ashok
Unlike the dividend option of mutual funds, growth options do not pay out any dividends. Hence the statement shows dividend reinvested as zero. Any dividends received by the mutual fund from the underlying shares invested in, are re-invested again in the portfolio securities. The same is also reflected in the higher NAV of a growth option, compared to the NAV of the dividend option of the same scheme. For an investor not seeking any income from his portfolio, dividends in effect reduce the invested amount and the investor loses out on any subsequent gains that he would have made on the dividends received till the end of his investment horizon and related compounding benefits.

Is there any lock-in period in gold ETFs for every investment?
—Sujit Kumar
No, gold ETFs are not subject to any lock-in. Gold ETFs like other securities are traded in the secondary market and investors can buy and sell ETF units in the secondary market at any point in time. Only Sovereign Gold Bonds (SGBs) have a lock-in of 5 years (total tenor of 8 years) from the date of issue. SGBs offer interest of 2.5% per annum (paid semi-annually) besides the potential to benefit from price appreciation. SGBs are listed on stock exchanges and can be traded among market participants.

What will be Deemed Purchase Price of the mutual fund for units transfer-red from the deceased to the nominee for grandfathering and calculation of LTCG?
—K R Krithika
After the demise of the primary owner, all units are transferred to the nominee at the NAV prevailing on the day of the death of the primary owner. In case of subsequent sale of these units, the original purchase date and price shall be considered for computing the amount and nature of gains based on the holding period. For computing LTCG in equity mutual funds, grandfathering would be applicable in case of purchase of units before January 31, 2018. The deemed cost of acquisition would be 1) the higher of actual cost price and 2) the lower of the actual sale price and the price as on January 31, 2018.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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