Definition of Dividend Stripping

Dividend stripping is when the investment is made with the thought of exiting the fund as soon as the dividend is received.

Dividend stripping is usually a strategy used by investors for reducing their tax burden. The investor invests in securities just before the record date and exits immediately after the dividend is received. The dividend received is tax free.

Points to remember:

• Dividend stripping is usually a strategy used in mutual funds.
• Many-a-times, the investors might incur loss due to such sale-off of shares. In such cases, they book for a capital loss which is then used for claiming tax breaks.