Sometimes, it so happens that you would have wanted to invest in the dividend option of a mutual fund, but when you received the statement you may have realised that your money has been parked in the growth option instead. The fund house or the registrar and transfer agent, who handle the record-keeping of mutual fund transactions, follow the rules laid down in the scheme information document (SID).
‘Not in good order (NIGO) transactions’ are those in which the investor has not filled up the scheme’s application form as per the laid down process. There are glitches possible such as non-selection of the right option, missing document or incomplete KYC or even mismatch between the form and cheque cut.
Many a time, due to oversight, investors forget to tick the right option. In that case, the ‘default option’ is exercised while issuing units. For example, for transactions initiated through a distributor, the default option would be ‘regular plan-growth option.’ For a direct plan investor, the same would be the ‘direct plan-growth option.’ While most mutual funds designate ‘growth option’ as the default choice, a few such as Aditya Birla Sun Life AMC designate ‘dividend option’ as default option.
Even if an investor selects the dividend option, but does not specify the payout or reinvestment, then the fund house will go with default option. The default option can be any one of these two.
The fund house also mentions the default option to be exercised in case the investor/distributor forgets to mention the broker code and plan or there is no clarity about these.
This information is mentioned in the SID and differs across schemes and fund houses. Investors must be careful while filling the forms. Otherwise, they will have to accept units issued of the default option.
You can change your plan after you receive the account statement. But if you do it immediately after receiving the statement, you will be charged exit load – when you shift from growth to dividend or the other way round. Generally, there won’t be an exit load if you change from reinvestment to payout option under the dividend plan. If you do it after some time, to avoid the exit load, then there can be tax on capital gains.