Fund income distribution refers to the distribution of the net income of the Fund to fund holders in proportion to the number of fund units held. If the fund has lost money in the previous year, the current year's income shall be used to make up for the previous year's loss. If there is still any surplus after the fund's loss has been fully made up, the current year's income can be distributed. If the Fund suffers losses in the current year and has no net income, no income distribution shall be made.
Principles and methods of fund income distribution (dividend)
First of all, it needs to be clear that the distribution of fund income will lead to a decrease in the net value of fund shares. For example, if a fund's net value of shares before income distribution is $1.2, and each fund distributes $0.05 of income, the net value of fund shares will drop to $1.15 after distribution. But for investors, the value before and after the dividend is unchanged.
(1) Income distribution of closed-end funds. According to relevant laws and regulations, the income distribution of closed-end funds shall not be less than once a year, and the annual income distribution proportion of closed-end funds shall not be less than 90% of the annual income of the funds. The income of a closed-end fund in the current year shall first make up the loss of the previous year. If the loss occurs in the current year, the income will not be distributed. Closed end funds generally use cash dividends.
(2) Income distribution of open-ended funds. The fund contract of an open-ended fund shall stipulate the maximum number of times and the minimum proportion of annual fund income distribution. In practice, many fund contracts stipulate at least once a year. The current year's income of open-ended funds should also cover the losses of the previous year. If losses occur in the current year, no income distribution will be made. Dividends can be divided into cash dividends and dividends reinvested into fund shares. The Fund Unitholders of open-ended funds may choose in advance to convert the distributed cash proceeds into Fund units in accordance with the provisions of the Fund Agreement on the subscription of Fund units; If the holders of fund units have not made a choice in advance, the fund manager shall pay cash.
(3) Income distribution of money market funds. According to relevant laws and regulations, for money market funds that quote at face value on a daily basis, the way of income distribution can be agreed in the fund contract as dividend reinvestment, and the way of income distribution can be agreed in the fund contract: that is, whether the income is carried forward daily or monthly. The Fund units subscribed on that day shall enjoy the distribution rights and interests of the Fund income from the next working day.
Form of fund income distribution
The forms of income distribution of the Fund are: payment of cash and increase of fund units. In the United States, the fund distribution methods generally include cash distribution and automatic reinvestment to purchase fund shares. Almost all funds in the United States have automatic reinvestment clauses. Most automatic reinvestments do not charge any additional fees. Some fund companies also allow investors' dividends to be reinvested in other funds under their names, thus providing a greater degree of risk diversification. Many mutual fund shareholders choose to reinvest their cash distributions in the purchase of additional shares of the fund, rather than withdraw them as cash.
Frequency of fund income distribution
In terms of the frequency of income distribution, the regulations and practices of different countries and regions are also different, including once a year, at least once a year, and once every half a year. In general, the fewer times of income distribution, the simpler the procedures. However, because of the differen ces in fund types, investor types and preferences, most funds have flexible income distribution methods to meet the different needs of investors.
Procedures for distribution of fund income
As for the procedure of fund income distribution, the fund management company shall issue the distribution instruction to the fund custodian institution, and the custodian institution shall allocate the total amount of the approved distribution to the instructed payee.
The income distribution of an open-ended fund may be handled by the fund manager or transfer agent. The fund management company shall issue a payment instruction to the fund custodian institution, which shall allocate the total amount of the approved distribution to the fund manager or transfer agent. The fund manager or transfer agent shall determine the amount of dividends due to investors and be responsible for paying them. For the shareholders who choose cash dividends, in the case of direct sales, the fund manager or transfer agent can directly pay cash to the investor or remit the payment by cheque to the investor's bank account. In the case of consignment, the fund manager or transfer agent shall pay the money to the sales agent, who shall handle the direct payment to investors. For investors who choose to reinvest dividends, their cumulative investment fund units shall be directly repurchased by the transfer agent according to the appropriate net asset value to increase the number of fund units they hold.
