Bro, what Pink said is true for mutual funds leh.
eg.
31/12/2011 NAV $1
1/1/2012 Distribution of dividend say $0.10
end of day 1/1/2012 NAV drops to $0.90+/- (depending on the movement of prices of stocks/bonds/etc. held LESS distribution per unit & mgt fees deducted daily)

Haven't U noticed whenever a distribution (true-er word than dividends) is executed, NAV of funds fall nearly the same amount?

Perhaps best U search through LYN's Public Mutual v2 and V3 threads/topic + this thread/topic on "distribution" or "dividend". Long and lots of postings earlier, with details.

This post has been edited by wongmunkeong: Jun 26 2012, 07:54 PM

Just my personal opinion, to me I would prefer to invest in a fund that persistently given me distribution compare to those no distribution at all.The distribution may not help in short term but it really help to lowering down the average cost per unit in LT (Long Term). I have a practical PRSF account that showing the average cost per unit has been down from RM1.0000 to RM0.2540 (Time frame is from 09/05/1994 to 01/04/2011). Most important, the accumulation of units have been increased from 1994 to 2011. Of course, you may not escape from TAX, Administrative Charges and etcs. Like what I commented before, no free lunch in this world. If a fund can given Capital Growth, why I should care about those costs? However for other example such as Public China Select Fund, it has been underwater (much behind baseline), and there is not even a single distribution given away since it's commencement. Do any one aware for PRSF in my example above, for the first commencement on 09 May 1994 to 15/04/1996 has not even have any single distribution declared for the past 3 years. From 30/04/1996 the PRSF began it's consistent distribution (annually until 2012, never missed one year in my practical records for the next 15 years) Hence if given a choice, I would still prefer to invest in those fund given distribution.

I just did a very long-winded illustration but my itchy hand accidentally deleted the whole thing

Now I'd just keep it short

This is a practical situation and a practical illusion

U said it above, "now let say the current PRICE UP..."
Dividends (or should we use sifu wongmunkeong's word, "distribution"? ) do not change your financial position AT ALL (perhaps maybe throw some taxes and expenses at you). ONLY movements in NAV price do.

Chronology of a fund making distribution:
1. Cum-distribution (distribution is declared)
2. Ex-distribution (here is when the fund NAV kaboom drop down a lot)
3. Distribution is paid/reinvested

Between 2 and 3, it usually takes from a week to maybe a month. During that period, that amount of distribution would go "missing" from unitholder's account. If u print your portfolio statement during that period, u will see that fund in deep red probably.

And during that period, the fund is still "in business", speculating, trading, etc, and value of its holdings be it shares or bonds would still be fluctuating on daily basis.

Then 3 comes, your holdings would go back up as the distribution is reinvested for you. The difference between value of your holdings on 1 (cum-distribution day) and value of your holdings on 3 (the day distributions are reinvested) are due to:
(1) Taxes on distribution
(2) Expenses and fees
(3) Market fluctuations

Just think of a fund as a "company", and we unitholders are the "shareholders" of the fund. The fund is solely in the business of investing in shares and/or bonds with some cash as liquidity buffer.

(From the fund's perspective)
A fund gets its income from - dividends from shares, coupon payments from bonds, interest from cash placements (A)
A fund gets its capital gains from - increases in market value of the shares and/or bonds it holds (B)

(From unitholder's perspective)
Unitholders get "income" when the fund declares distributions, and distributions can only be declared from (A)
Unitholders get "capital gain" when NAV price of the fund goes up, and it can be due to (A) or (B) or BOTH

Can u tell the difference between red and blue

This post has been edited by Pink Spider: Jun 26 2012, 10:36 PM

i think u mis understand abt distribution vs capital gain.

UT total return = capital gain + distribution(if any).

normaly distribution declare from the NAV (unit price itself), so it wont increase the wealth. capital gain is increase the wealth.


let say the unit price is rm1.00
let say u hv 10,000 units with the value rm10,000 in fund A.
let say rm0.10 declare as disrtibution.
10,000 units x rm0.10 = rm1000
so the distrintuion = rm 1000

after the distribution the unit price will be adjusted as rm1.00 - rm0.10 = rm0.90

the value after the distribution = 10,000 x rm0.90 = rm9000

if u plus the distributiom rm1000 with the fund value after the disribution rm9000 = rm10,000

meaning = UT total return = capital gain + distribution(if any).
meaning = RM10,000 = rm9000 + rm1000

back to squre, before and after the fund value is the same. so, the distribution never increase the wealth.

if the distribution re-invest back, meaning u r buying additional units (top up) with ur own distribution. so, the number of units will increase, this will by auto will reduce the cost per units/average price.

take not distribution can be decalre if the fund not perform well or not perform too. for this case eventhough the average price looks cheaper, but it must be cheaper than market price to give profits.

so, why the distribution is given? its because the fund follow the policy and not all the investor re-invest the distributions. some seek for distribution to spend. thats why the distribution were declare and those seek for re-invest, it will be re-invest accordingly without any service charge. becaue its from own money, frm own fund and from own unit price.

do not mis understand that if a fund give distribution every year, meaning it will help create weatlh, its wrong. even if every year it give distribution the fund must hv capital gain or perform well.

a fund only can give profits if the fund has capital gain from NAV at any of time. its not because of the distribution. distribution (re-invest) only help to give better cost per unit after the NAV re-adjusted. and accumulate more units.

yes, if units are accumulates becaue of the disribution re-invested, yes the invstor will get more amount as distribution, but its still not help to create more wealth.

pls visit my siggy abt how to calculate unit trust. u can correct me if i wrong.

---

Added on June 26, 2012, 10:56 pmi dont do any calculation base on ur details.

waht i can C is, the gain is because the NAV gain. not becasue the distribution. u already give the gain price ( after the distribution) from rm1.1413 to rm1.2107. its a capital gain.

u cannot assume the accumulated units help u the gain, its wrong, because its ur own units/money from ur initial investment.

do you agree that if the NAV price drop more, and u agree u have more lost becasue u hv more accumulated units?



This post has been edited by kparam77: Jun 26 2012, 10:56 PM

Thanks bro

Let say is u hv 1kg of cake. Slice it.
500grm x 2 slices = 1 kg
250grm x 4 slices = 1kg
100grm x 10 slices = 1kg
50grm x 20 slices = 1 kg
25grm x 40 slices = 1 kg

if the cake not has been slice, 1kg remain 1 kg.

U got the point now?

kparam77, I never deny your point of view. But please respect my preference!! :-)

whether u hv 100 units@RM1.00 per unit or 1000 units@RM0.10 per unit, ur holding is STILL RM100. I just dun understand the hype about dividends distributions

It should be clarified that dividends (or distributions or unit splits) do NOT increase or decrease the Net Asset Value (NAV) of the fund.

Is there any unit trust agents or fund managers recommending that the best time to buy into a unit trust fund is before its financial year-end before it makes any distribution declaration? Any inside information that the fund managers can help their friends?

Or is it more likely that the standard recommendation is that buying into a fund is the same at anytime (except market conditions, of course) ?

"hold it at least until 5th July because u will get a big amount of DIVIDEN. so, why cash out when u can get more?"
By this reasoning, we should only buy into a fund just before its financial year-end. No need to do any hard selling, just mark into the calendar all the financial year-ends, and approach clients to invest at the appropriate dates. Sure winner one.

i'm sharig/trying to give better understanding only.

Let say is u hv 1kg of cake. Slice it. the price is RM1000.
1000kg = 1 slice = RM1000 , average price = RM1000
500grm x 2 slices = 1 kg , average price = RM1000 / 2 slices = RM500 per slice
250grm x 4 slices = 1kg , average price = RM1000 / 4 slices = RM250 per slice

100grm x 10 slices = 1kg , average price = RM1000 / 10 slices = RM100 per slice
50grm x 20 slices = 1 kg, average price = RM1000 / 20 slices = RM50 per slice

25grm x 40 slices = 1 kg, average price = RM1000 / 40 slices = RM25 per slice

the average price of slice get cheaper when the number of slices increase or accumulated within the limit.

let say the cake price increase rm100, meaning the value = rm1100.

rm100 / 40 slices = rm2.5,

so, every slices of cake price will increase by rm2.5, which is rm25 +rm2.5 = rm27.5 to give profits for all the slices.

sharing only.

an unit is just a DENOMINATION, it's not like more units = more "soldiers" to fight for u!

To say "The distribution may not help in short term but it really help to lowering down the average cost per unit in LT (Long Term)" is just completely utterly wrong.

That might be what you think you prefer, but practically, mathematically and financially, it makes no difference.

but the benefits of distribution cannot be deny also. the more units either from re-invest the distribution, top up, DDI............ can/may give more income.
http://www.pk31-tips.blogspot.com/2011/10/...unit-trust.html

I'm not sure about this distribution / dividend issues... but it did help me a lil bit to my GEMs bond fund (from -ve to +ve) additional 2.xx% jump in NAV...

Those happens, must have reason. Benefitting or not, its up to the investors understandings.

Please re-read my post...

E.g.

u invest RM1K today

then tomolo declare distribution, the fund goes ex-dividend, u see in your statement, RM900 (RM100 "gone"? )

then 2 weeks later, distribution credited into your account, your statement shows, RM1,010. Is the additional RM10 the result of the "dividend"?

Answer - See blue bold above. During the 2 weeks, the fund is still in business, the market value of its investments fluctuating on daily basis. It's NOT the effects of dividend, it's market value movements.

This post has been edited by Pink Spider: Jun 28 2012, 09:48 AM

so, can i say the dividend only give effects if the price goes up to the price-before-dividend?

It wont give the effect that day, but later on. Can aa aay like that?

give u a simple analogy to understand the whole process...

- Imagine the fund as a piece of cake
- The fund manager (FM) declares 1/4 of the cake as "dividend" on Day 2 ("cum-dividend")
- On Day 4, the FM cuts the cake into 4 portions
- 3 portions remain untouched, the FM takes 1 portion to another table to be cut into smaller portions to DISTRIBUTE (here's the dividend administration, "ex-dividend")
- Day 20, the 1 portion is returned to the kitchen table (REINVESTED, credited back into investors' account)

Focus on the days between Day 4 and Day 20, in between those days, the 3 portions are "working" to earn income, while 1 portion is temporarily "removed" for administration.

From Day 20 onwards, the whole "cake" is "working" again.

Do u get the idea

This post has been edited by Pink Spider: Jun 28 2012, 10:27 AM

(still on the topic of whether a distribution will dilute the net asset value...)

AFAIK, since my experience is with Public Mutual (as an investor, not employee), the NAV price per unit is calculated everyday at the end of each business day, and the total assets and liabilities includes the projected management fee, trustee fee, etc.

Repeat, it is calculated everyday, thus a financial year-end day is not any difference from any other day in calculating the NAV.

(The extra calculations on the year-end day is adding the extra units (in the declared distribution) proportionately to every units; and then divide the NAV by the total number of units. Of course there are other works done, like making cheque payments, tax, etc. but the point is that the calculations are immediate, and the effects of the distribution on the NAV price per unit and your total number of units is also immediate.)

The value of your investment in the fund will not increase or decrease the next day due to the distribution.

The total size of the fund is changed (as some of the distributions may not be re-invested back into the fund), but not your investment if your portion of the distribution is re-invested.

Okay, allow me to pull out a "Statements of Final Distribution for Financial Year Ended xxxxx"

Units entitled for distribution: 33,318.87
Reinvestment units: 1,913.50
Units Balance after reinvestment: 35,232.37

NAV per unit (RM):
Before distribution 0.3590
After distribution: 0.3395

Multiply the units against the NAV per unit, before and after distribution, if you care to, and it should be the same. (Rounding would result in slight insignificant several cents difference.)

A distribution is mainly to bring down the NAV price per unit for marketing purpose. For example, a bond fund will have a NAV price per unit at RM1.0000 after a financial year-end distribution.

Another purpose is to provide an annual income to investors who do not re-invest their distributed units.

This post has been edited by j.passing.by: Jun 28 2012, 01:41 PM

Ok, well said.

Now shall we consider this topic settled and closed?