Convert cash dividends directly into additional mutual fund units at zero fee to turn linear returns into an exponential wealth snowball.
A Dividend Reinvestment Plan (DREP - लाभांश पुनः लगानी योजना) is an option offered by open-ended mutual funds in Nepal where your annual cash dividends are automatically used to purchase additional units of the same fund on the allotment date at official NAV, rather than being credited to your bank account as liquid cash.
When an investor receives an NPR 15,000 cash dividend from a mutual fund, it lands in a checking account and is almost always spent on groceries, dining, or shopping within days. The compounding cycle is broken. With DREP, that NPR 15,000 buys ~1,250 new units at NAV NPR 12. Next year, those additional units also earn dividends. Over 15-20 years, DREP transforms modest savings into life-changing multi-million rupee wealth.
Tick the DREP box when creating your SIP or submit an online DREP conversion form through the capital manager's website anytime.
At the end of the fiscal year, the mutual fund board declares a dividend (e.g., 10% cash dividend based on realized portfolio profits).
The fund deducts 5% statutory dividend tax for resident individuals. The remaining net dividend is your eligible reinvestment capital.
The net dividend is divided by the official NAV on the allotment date, and the newly generated units are credited directly to your Demat (BOID) with zero fees.
| Strategy | Total Invested Out-of-Pocket | Cumulative Cash Withdrawn | Ending Portfolio Value (Yr 15) |
|---|---|---|---|
| Without DREP (Cash Dividends Taken) | NPR 18,00,000 | NPR 8,50,000 (spent away) | NPR 38,20,000 |
| With DREP (100% Reinvested) | NPR 18,00,000 | NPR 0 (reinvested) | NPR 50,45,000 |
| The DREP Advantage | Exact same capital invested | Zero lifestyle leakage | +NPR 12,25,000 Pure Extra Wealth |
Prior to the introduction of open-ended mutual funds in Nepal, unit-holders in close-ended funds had no legal mechanism to reinvest dividends; cash was mandatorily sent to bank accounts via IPS. Open-ended schemes managed by NIBL Ace Capital, Siddhartha Capital, NMB Capital, and others pioneered DREP under SEBON regulations. Today, over 65% of disciplined SIP investors in Nepal opt for DREP to maximize long-term retirement and child education corpora.
Sarita started an SIP of NPR 8,000/month 4 years ago. Every year, she received an NPR 12,000-18,000 dividend in her bank account during Dashain, which she routinely spent on festival shopping.
Her financial advisor showed her that taking cash dividends was robbing her retirement fund of compounding fuel. She logged into her capital portal and switched her SIP status to DREP. In the next 3 years, her reinvested dividends added 4,200 extra units to her portfolio without spending an extra rupee from her salary.
Goal & Dilemma: Maximizing the 15-year growth of an accumulated open-ended mutual fund portfolio.
\text{Current Units} \times \text{Par Value (NPR 10)} \times \text{Dividend \%}.
5% flat tax for individual Nepali residents.
Official unit price applied for reinvestment.
Holding 20,000 units. Dividend declared = 12% (NPR 1.20/unit). Gross dividend = NPR 24,000. Less 5% TDS (NPR 1,200) = NPR 22,800 net. If NAV on allotment date is NPR 11.40: New Units = 22,800 / 11.40 = 2,000 units added to Demat completely free!
Treating cash dividends as "passive income" during wealth accumulation years.
Unless you are retired, always choose DREP to let dividends buy more income-producing assets.
Assuming DREP incurs entry loads or broker commissions.
DREP units are issued directly by the fund manager with zero purchase or brokerage fees.
Believing DREP units are not eligible for future dividends.
DREP units become full-fledged units immediately, earning their own dividends in subsequent years.
Yes. You can submit an online request through the fund manager's portal to switch your dividend preference from DREP to Cash Dividend anytime before the fiscal year-end book closure.
Yes. Once the capital manager completes the allotment, the new units are directly deposited into your Demat account and become visible in MeroShare "My Holdings".
No. Close-ended funds have a fixed unit capital and cannot legally create new units for DREP; all close-ended dividends must be paid out in cash.
DREP is exclusively available in open-ended mutual fund schemes (e.g. NIBL Sahabhagita, Siddhartha Systematic) because they can continuously issue new units at NAV. Closed-ended funds cannot offer DREP.
Yes. Under Section 88 of the Income Tax Act, 5% final withholding tax (TDS) is deducted by the fund manager, and the remaining 95% net dividend is automatically used to purchase units.