132) Difference between Dividend vs Distribution
Many people got confused on the differences between Dividend and Distribution in the Unit Trust Industry. Where are the money source of Dividend and Distribution?
Let's start with Dividend.
Dividend
Dividend is paid out by a public listed company to the shareholders. After making profits, the company may decide to give part of the profits to reward their share holders. A company may even give dividends a few times per year.
The Stock Exchange
The Stock market is where the shareholders trade the stocks or shares. This means to buy and sell the shares. The price of the share is decided between the buyer and seller. The buyer thinks that a certain company is good and decides to own the company's share. The buyer is willing to pay a certain price to get the shares.
At the same time, a seller may think that the company share is already expensive. The seller decides to sell the share away and get back his money.
The Buyer enters the price he is willing to buy. The Seller enters the price he is willing to sell. Both enters the prices into the Stock Exchange platform. When the buying and selling price matched at the same price, the trade happens. Now, the Buyer gets the share and seller gave away the share.
The share price changes regularly during the trading hours.
The share price is completely different and separate from the company profits.
After the company announced the dividend amount to be paid out, the share price may go higher or drops. It depends on the perceived value of the company. If the dividend is higher than expected, the share price may go higher. However, if the dividend payout is lower than expected, the share price may drop.
After the ex-dividend date, the share price will drop as the registered share holder will get the dividend (profit) and thinks the share is worth less now.
The share price will start to fluctuate based on demand and supply again.
Unit Trust Funds
An Equity Unit Trust fund is mostly invested into shares. However, the fund also invests in bonds and money market instruments. The Equity fund is actually a share holder of many companies. Being a share holder, the fund receives dividend from the various company shares.
The NAV per unit price depends on:
a) market price of the shares, bonds & money market
b) profit or loses from share & bond trading
c) dividend received from shares
d) coupon payments received from bonds
e) interest received from money market instruments
The total NAV of the fund are calculated at the end of the day after the market closes.When the Total NAV is divided by the number of units, you get the fund's Unit Price.
Distribution
The fund NAV changes daily, up and down according to the market conditions. Normally, at the end of the fund's Financial Year, the fund manager may declare a distribution. The distribution is to return part of the NAV back to the Unit Holder. The distribution money is taken from the NAV of the fund. The fund price is the NAV per unit.
The fund price will be reduced by the same amount as the distribution.
For example, a fund price of RM1.00 will be RM0.90 after a distribution of RM0.10.
In the next morning after the distribution date, the unit price is RM0.90. By the closing time (valuation point) on same day, the unit price will change due to the fluctuations of that day's asset value. The new closing unit price may be slightly higher or lower than RM0.90.
In conclusion,
Dividend and share price are from separate money accounts.
Distribution and Unit Trust price are from the same money accounts.
For more information, please consult your Unit Trust Consultant.
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Click the link below to know the Benefits of Distribution.
http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html
Dividends are payments given by companies to their shareholders. They are paid from the profits of the company.
ReplyDeleteMutual funds are other type of investments also include bonds, foreign currency. These security also sell stocks at a profit and earn capital gains. All of these earnings known as dividends.
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