1 - Understand what is NAV
NAV = Net Asset Value
In finance language, net asset = capital
E.g. u invest RM10,000 in ABC Fund, RM10,000 is your CAPITAL INVESTED

2 - Understand what is income
Income = Revenue LESS Expenses
In investment/finance, there are 2 types of income:
(1) Realised incomes - dividend income, interest income, net gain from sales/disposals
(2) Unrealised incomes - gain from increase of market value of investments i.e. "paper gain"
Usually, UTs distribute income from (1). However, there are chances that losses from (2) exceed incomes from (1).

For discussion purposes, let's assume (2) = zero
If u know your finance, when a stock distributes dividend, THEORETICALLY its stock price would go down.
What determines a stock price (other than market forces)? Total Assets - Total Liabilities = Net Asset

Let's say XYZ Berhad,
Total Assets including cash = RM100M
Total Liabilities = RM20M
Net Asset = RM80M
Shares in circulation = 80M shares so NAV per share is RM1

Now it pays dividend of RM10M to its shareholders
What will happen to its Balance Sheet?
Total Assets including cash = RM100M - RM10M = RM90M
Total Liabilities = RM20M
Net Asset = RM70M
Shares in circulation = 80M shares so NAV per share is RM0.875

Let's say Mr Wong Sifu is the SOLE SHAREHOLDER of XYZ Berhad...

Mr Wong Sifu's portfolio
Before dividend:
Value of shares = RM80M
Cash on hand = RM0.00
Total = RM80M

After dividend:
Value of shares = RM70M
Cash on hand = RM10M
Total = RM80M

See the "magic"?

Applying this to Unit Trust...

A fund CAN give u income distributions EVEN IF its underlying assets' market value keep dropping ("paper loss") if they get enough dividends and interest incomes ("realised incomes")

As such, PLEASE READ THE FUND REPORTS AND PROSPECTUS CAREFULLY

Regular income distributions don't make unitholders richer
It is capital gains that make them richer

nice explanation frm pink spider.

to make it simple, whenever u get the income, your value will be reduce by the amount of income.

this is another one for u..... take note, income in UT call distribution.

Total return in UT = income distribution(if any) + Capital gain/loss.

Income Distribution VS capital gain.

The effect of income distributions if cash out.


Public SmallCap Fund.
Risk Factor : Aggressive.
Financial year : 31 August
Launch Date : 13/06/2000

If RM10,000 invested in this Fund on 13/06/2000. After the service charge, 20,000 units purchased at RM0.470 for the price RM9400.00

Current value/returns as at 01/12/2010:
Public Smallcap Fund = RM40,931.95 with market price RM0.8732 per unit.

Public SmallCap fund managed to give up to RM40,931.95 (309.31% in 11 years). with average simple return 28.12 annually.

Actual Profits = RM40,931.95 - RM10,000 = RM30,931.95

Total return = RM30,931.95 / RM10,000 X 100 = 309.31%

Average simple return 309.31% / 11 years = 28.12%

Since the distributions for RM10,000,  re-invest back (Compounding interest) , Public Smallcap fund managed to give RM40,931.95 as at 01/12/2010.

tis is call capital gain over the time.

Let see what will happen if the distributions take out as CASH. (No Compounding interest to work for money)

2000 - No distribution given for Public Smallcap fund

2001 - No distribution given for Public Smallcap fund

2002 - RM0.040 given for per unit.
Total units purchased X Rm0.040
20,000 X Rm0.040 = RM800.00 (Taken out)

If the distributions taken out, the remaining units in investment are still 20,000 units.

2003 - RM0.035 given for per unit.
Remaining  units  X Rm0.035
20,000 X Rm0.035 = RM700.00 (Taken out)

If the distributions taken out, the remaining units in investment are still 20,000 units.

2004 - RM0.050 given for per unit.
Remaining  units  X Rm0.050
20,000 X Rm0.050 = RM1000.00 (Cash out)

If the distributions taken out, the remaining units in investment are still 20,000 units.

2005 - RM0.060 given for per unit.
Remaining  units  X Rm0.060
20,000 X Rm0.060 = RM1200.00 (Cash out)


If the distributions taken out, the remaining units in investment are still 20,000 units.

2006 - RM0.050 given for per unit.
Remaining  units  X Rm0.050
20,000 X Rm0.050 = RM1000.00 (Cash out)


If the distributions taken out, the remaining units in investment are still 20,000 units.

2007 - RM0.090 given for per unit.
Remaining  units  X Rm0.090
20,000 X Rm0.090 = RM1800.00 (Cash out)


If the distributions taken out, the remaining units in investment are still 20,000 units.


2008 - RM0.080 given for per unit.
Remaining  units  X Rm0.080
20,000 X Rm0.080 = RM1600.00 (Taken out)

If the distributions taken out, the remaining units in investment are still 20,000 units.

2009 - RM0.080 given for per unit.
Remaining  units  X Rm0.080
20,000 X Rm0.0850 = RM1600.00 (Cash out)


If the distributions taken out, the remaining units in investment are still 20,000 units.

2010 - RM0.090 given for per unit.
Remaining  units  X Rm0.090
20,000 X Rm0.090 = RM1800.00 (Cash out)


If the distributions taken out, the remaining units in investment are still 20,000 units.

Total incomes/distributions taken out (Cash out) are:
2002 -RM800.00  (No Compounding interest  for next 8 years)
2003 - RM700.00 (No Compounding interest  for next 7 years)
2004 - RM1000.00 (No Compounding interest  for next 6 years)
2005 - RM1200.00 (No Compounding interest  for next 5 years)
2006 - RM1000.00 (No Compounding interest  for next 4 years)
2007 - RM1800.00 (No Compounding interest  for next 3 years)
2008 - RM1600.00 (No Compounding interest  for next 2 years)
2009 - RM1600.00 (No Compounding interest  for next 1 years)
2010 - RM1800.00 (No Compounding interest  for next 0 years)

Total -  RM11,500.00.
If the remaining 20,000 units sell-back at RM0.8732 on 01/12/2010 = RM17,464.00
Total returns = RM11,500.00 + RM17,464.00 = RM28,964.00 only

So,
If the distributions NOT taken out and let the compounding interest work, As at 01/12/2010 the return is RM40,931.95.

If the distributions taken out, the return only = RM 28,964.00.

Diff = RM40,931.95 - RM 28,964.00 = RM11,967.95


If distributions re-invest back, the units will grow and more returns over the time if the fund perform well.

so, this is how to get high capital gain by re-invest the income over the time.


go to......  http://www.pk31-publicmutual.blogspot.com/ if u still