Back to BasicsContinuing on with the “Back to Basics” series... These posts are on the fundamentals of mutual fund (also known as unit trust), and are purposely titled for ease of search; sort of ‘tagging’ them.
Income DistributionWhile FD has interest, and fixed-price fund (such as EPF and ASB) has dividends; variable priced mutual fund has ‘income distribution’.
It is important to note that it is not a play on words or giving different names to the same thing. Income distribution is NOT interest or dividend. More on this latter, as there are 2 things that are needed to know about income distribution:
1: The fund’s policy on income distribution.
Normally, the policy is either “incidental” or “annual”. The former is usually when the fund is a growth fund, and hence, will only declare a distribution when the fund made some gains.
The latter means that the fund will make an annual distribution (whether this is any real growth or not); and normally, it is an Income or Dividend fund.
Please note some funds are ‘semi-annual’, such as PDSF (Public Dividend Select Fund) and PIDF (Public Islamic Dividend Fund).
2: Your option of having the distribution as “Re-Invest” or “Payout”.
By default, the option is set to “re-invest”; meaning that the distributed amount (in ringgit) is converted to more units in the fund. The 2nd option means that cheque will be made out to you (or directly transferred into your bank account.)
As mentioned in an earlier post, a variable priced mutual fund is re-priced at the end of every business day; and its NAV/unit price is then made known latter at night or the following working day.
NAV means NET Asset Value; meaning the value is a net figure and already taken into account its management & trustee fee, and the market prices of the stocks the fund is holding on that particular day.
Hence, Income Distribution is
not accumulated gains or interests that are being paid out. If there is any gain, it is already priced into the NAV/unit price; and which you can attain the gain anytime you wished to, by redeeming the fund at anytime you want, before or after the distribution.
Income distribution is an exercise to give out some money to investors who elected the “payout” option.
(If the distribution option selected is “Re-Invest”, the money is used to buy more units. Since there are now more units, the NAV per unit is then re-priced. After all is said and done, the NAV/unit price is lowered; but the NET value is still the same – meaning that what you have, in ringgit amount, in the fund is still the same - before or after a “re-invest” distribution.)
Master ProspectusThe above info on distribution policy can be found in the prospectus of the fund.
(Prospectus - a document describing the major features of a proposed literary work, project, business venture, etc., in enough detail so that prospective investors, participants, or buyers may evaluate it.
http://dictionary.reference.com/browse/prospectus )
It is advisable to read the master prospectus – which group all the available funds together into one document, to get to know more details of the fund and to compare the funds.
And try to read between the lines too; as it is, after all, a marketing document to present the fund in the best manner to present and market itself.
I would take lightly the “Suggested Minimum Investment Period” which is usually 3-5 years. Please read back the previous post on “Annualized Rates and Service Charges.”
Cheers. Keep investing.
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One thing good about Public Mutual is that they are predictable and efficient in their procedures in handling income distributions. It would help a senior and DIY investor, who is relying on distribution income to finance his/her retirement, to determine which bond or equity funds to have in his/her portfolio.
As usual, Public Mutual had declared income distribution on the last working day of the month, which is yesterday, for those funds with financial year ending 31st May. The re-invested units could be updated in PMO latest by Tuesday.
Cheers.