Insights

Transition from IDCW to “Growth Option” for Kotak Nifty 1D Rate Liquid ETF

July 19, 2024 . FundsIndia Desk

Bulletin

The Boards of Kotak Mahindra Asset Management Company Limited and Kotak Mahindra Trustee Company Limited have approved a key update to the Kotak Nifty 1D Rate Liquid ETF.

1. Scheme Name: Kotak Nifty 1D Rate Liquid ETF

2. Proposed Change: The current option of “Daily Income Distribution cum Capital Withdrawal (IDCW) Reinvestment” will be replaced with the “Growth Option.”

3. Rationale: Opting for the Growth option allows for the reinvestment of profits, which can enhance the NAV through compounding interest, potentially leading to higher returns over time. This option is more investor-friendly as it eliminates tax implications on each dividend declaration, which are only incurred when returns are realized. Therefore, transitioning from the IDCW option to the Growth Option will simplify the investment process and align with current tax provisions.

4. The comparison between the existing features and the proposed features are as follows:

Table with Inline CSS

Particulars	Existing Scheme Features	Proposed Scheme Features (Changes highlighted in Bold)
1. Option	Currently, there are no plans under the Scheme. The Scheme shall have only one option which shall be daily Income Distribution cum Capital Withdrawal (IDCW) reinvestment. The AMC/Trustee reserve the right to introduce Option(s) as may be deemed appropriate at a later date.	The Scheme shall have only one option which shall be the growth option.
2. IDCW Option/ Frequency and Record date	The Scheme will declare IDCW at a daily frequency, subject to availability of distributable surplus. IDCW declared on daily basis will be compulsorily reinvested in the Scheme. Units arising out of IDCW reinvestment will be extinguished and paid out to the investors on a weekly basis i.e. payout on Monday of the following week. In case the payout date falls on a non-business day the payout will be done on the immediate following business day.	Nil
3. Cut-off timing for subscriptions/ redemptions/ switches	For Purchase/ Redemption directly from the fund on any business day: a. up to 3.00 p.m. on a business day, the NAV of such business day. b. After 3.00 p.m. on a business day, the NAV of the following business day. Pursuant to para 3.6.2 of SEBI Master Circular No. SEBI/HO/IMD/IMD-PoD- 1/P/CIR/2024/90 dated June 27, 2024, the aforesaid cut-off timing shall not be applicable for direct transactions with AMCs by MM and other eligible investors.	Pursuant to para 3.6.2 of SEBI Master Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/90 dated June 27, 2024, Direct transactions by MMs or other eligible investors with AMCs shall be at intra-day NAV based on the actual execution price of the underlying portfolio. Liquidity window for Investors of ETFs with AMCs: In accordance with para 3.6.6 of SEBI Master Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/90 dated June 27, 2024, Investors other than Market Makers and Large Investors can directly approach the AMC for the redemption of units of ETFs, for transactions of up to INR 25 crores or such other amount as may be specified by SEBI from time to time without any exit load or such other amount as may be specified by SEBI from time to time, in case of the following scenarios: a) Traded price (closing price) of the ETF units is at a discount of more than 1% to the day end NAV for 7 continuous trading days, or b) No quotes are available on stock exchanges for 3 consecutive trading days, or c) Total bid size on the exchange is less than half of creation units size daily, averaged over a period of 7 consecutive trading days. In such a scenario valid applications received from investors for redemption up to 3 p.m. on any trading day, shall be processed by the AMC at the closing NAV of the day. Such instances shall be tracked by the AMC on an ongoing basis and in case if any of the above-mentioned scenario arises the same shall be disclosed on the website of the AMC.