Facing scrutiny by the government and the regulator, Sebi, fund houses have pleaded ‘not guilty’ to allegations of indulging in ‘dividend stripping’: an illicit practice used for possible tax evasion through investments in mutual funds.
The matter is likely to be discussed later this week at a board meeting of mutual fund industry body and frontline regulator AMFI (Association of Mutual Funds in India).
Dividend-stripping involves an investor buying a dividend plan of a mutual fund scheme, booking a loss on it, and then set it off against capital gains from other sources.
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Citing some media reports on this matter, the government recently wrote to the Sebi, which is mandated to regulate mutual fund space, to look into the matter and take appropriate actions. Subsequently, Sebi wrote to the fund houses last week, seeking their clarification on whether they were indulging in ‘dividend stripping’.
In their respective responses, most of the fund houses have stated that they were not adopting any such techniques.
A few others have been more careful in their responses and have said they were not aware of any such activities, but would take strict action and report the same to Sebi if anything of this sort came out during their internal probes.
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Privately, senior executives at some fund houses, however, admit that dividend stripping was indeed taking place and such techniques were largely being used for tax arbitrage by investors and mutual fund houses.
The fund houses have now decided to discuss the matter at the industry level on the AMFI platform and some of them want to take a collective stand through the industry body in their communications and meetings with Sebi and the government.
As per reports, about Rs 25,500 crore was collected in dividend-stripping schemes between April 2014 and October 2015, creating an accounting book loss of over Rs 8,400 crore. Sebi chairman UK Sinha said last week that rules were in place to check such practices but strict action would be taken against those violating those. — PTI
The matter is likely to be discussed later this week
at a board meeting of AMFI