Cum-dividend NAV

When a fund declares a dividend under the Income Distribution cum Capital Withdrawal payout or reinvestment option, the payout does not happen instantly. Between the moment the dividend is announced and the moment it is actually paid out (or reinvested), the scheme's NAV still carries the full value that is about to be distributed. That in-between NAV is the cum-Dividend NAV.

Once the dividend is actually paid, the NAV falls by that amount and becomes the ex-Dividend NAV instead.

The mechanics are the same whether the investor takes the dividend as cash or reinvests it:

• Before payment: the NAV is cum-Dividend NAV — it still includes the distributable amount.
• At payment: the NAV falls to the exact extent of the dividend paid, and the resulting lower NAV is called ex-Dividend NAV.
• In a Growth option, no dividend is ever declared, so there is no cum- or ex-dividend distinction at all — the NAV simply captures the full portfolio gain.

Reinvestment, where offered, always happens at the ex-Dividend NAV, not the cum-Dividend NAV — the investor's new units are bought after the value has already left the pool.

Investors A, B and C each hold 100 units of a scheme, bought at a NAV of Rs 10, in the Growth, IDCW Payout and IDCW Reinvestment options respectively. The NAV appreciates to Rs 12, and the fund declares a dividend of 10% of face value — Re 1 per unit (10% × Rs 10 face value).

At Rs 12, just before the dividend is paid, the NAV for B and C's units is the cum-Dividend NAV of Rs 12 — it still contains the Re 1 about to go out.

Once paid:

• Investor B (Payout): receives Rs 100 (Re 1 × 100 units) in cash. The NAV falls to the ex-Dividend NAV of Rs 11 (Rs 12 − Re 1). B's 100 units are now worth Rs 1,100, plus the Rs 100 cash — Rs 1,200 total, of which Rs 100 is dividend and Rs 100 is capital appreciation.
• Investor C (Reinvestment): the Rs 100 due is reinvested at the ex-Dividend NAV of Rs 11, buying 9.09 additional units (Rs 100 ÷ Rs 11). C now holds 109.09 units worth Rs 1,200 at the Rs 11 NAV.
• Investor A (Growth): no dividend is declared. A's 100 units are simply worth Rs 1,200 at the Rs 12 NAV.

All three end up with the same Rs 1,200 of value — only the mix of cash, units and NAV differs, and only B and C ever see a cum-Dividend NAV at all.

Chapter 9, section 9.3.2, in the discussion of IDCW Payout, IDCW Reinvestment and Growth options, and revisited in the chapter's sample questions. Expect the classic pairing question — asking which term describes the NAV after a dividend is paid (the answer is ex-Dividend NAV, not cum-Dividend NAV) — plus a worked NAV/units calculation like Illustration 9.1 above.

• Cum-dividend NAV is before payment; ex-dividend NAV is after. The sample question in this very chapter is designed to catch candidates who swap the two.
• Reinvestment happens at the ex-Dividend NAV, never at the cum-Dividend NAV — a common calculation error is dividing the reinvested amount by the higher, cum-dividend figure.
• A Growth option never has a cum- or ex-dividend NAV — there is no dividend event to create one.
• The rupee value of the investment does not change at the moment of a dividend declaration; only its composition (cash, units, or unrealised NAV) does.