During the dividend paying season, there are a couple of interesting trends, say those in the sector. One, since the dividend rate and payout date is declared in advance, many investors enter the scheme a few days before to take advantage of the high dividend paid out. Two, some wait till the dividend is paid out, so that they get more units due to the falling net asset value (NAV). Why would investors want to go through such an exercise?
Hemant Rustagi, chief executive, WiseInvest, points out: “When the fund house pays dividends, you are simply getting back part of your investment.” If the NAV of the scheme was Rs 100 and the scheme paid Rs 6 as dividend, the NAV falls to that extent, to Rs 94. However, some tax advantage does exist when investing in an equity-linked savings scheme (ELSS) a few days before the dividend declaration. Since the investment gets locked into an ELSS for three years, getting back part of the investment means you invest less for higher tax benefit.
Source: Business Standard
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