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Yields on funds

Hi all,

When you invest in a fund (say one of the Invesco ones) and it quotes a yield of say 5%, is this effectively the same as the dividend yield?

In other words you will get 5% of the value of your investment back as income? I'm guessing the yield is paid out of the dividends of the companies that comprise the fund?

Have I got the right idea?

Many thanks all

S

Comments

  • Lokolo
    Lokolo Posts: 20,861 Forumite
    Part of the Furniture 10,000 Posts
    Yes I think thats right.
  • sh856531
    sh856531 Posts: 444 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    Thanks matey

    S
  • For dividend funds, the historic yield quoted is based on the total of distributions paid in the previous twelve months.

    http://www.newstaram.com/documents/pdfs/factsheets/oeics/fs-higherincome.pdf

    "The Historic Yield reflects distributions declared over the past 12 months as a percentage of the mid-market share price, at the date shown. It does not include any preliminary charge and investors may be subject to tax on their distributions. The fund's annual management fee is charged to capital. This has the effect of increasing the distributions for the year by 1.50 percentage points and constraining the fund's capital performance to an equivalent extent."


    For interest funds, there are two yields - distribution yield and underlying yield. If a fund charges expenses to capital, the distribution yield will be higher than the underlying (which assumes all expenses are from income). Otherwise distribution yield and underlying yield will normally be the same.

    https://www.thehartford.co.uk/MungoBlobs/657/679/New_Star_Extra_High_Yield.pdf

    "The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a
    percentage of the mid market unit price of the fund at the date shown. The Underlying Yield reflects the annualised income net of expenses of the fund (calculated in accordance with
    relevant accounting standards) as a percentage of the mid-market unit price of the fund at the date shown. The Distribution and Underlying Yields are based on a snapshot of the portfolio on that day. The yields do not include any preliminary charge and investors may be subject to tax on distributions. The Distribution Yield may be higher than the Underlying Yield. This is
    because the fund may distribute coupon income and the fund's annual management fee is charged to capital. This has the effect of increasing the distributions for the year and constraining
    the fund's capital performance to an equivalent extent. "

    The reference to relevant accounting standards is that the basis for accruing interest on bonds is "effective yield basis".

    This means that a fund buying Conversion 9% 12 July 2011 today at £117.5% would accrue income at 2.08% (GRY) and not the coupon yield of 7.68% (income yield - details from Selftrade see below). If held to maturity there would be no capital loss on redemption.

    However, interest funds can distribute on a coupon basis but only if coupon is higher than effective yield basis - hence the New Star reference to coupon basis. New Star might be taking the 17.5% as a realised capital loss on redemption and enhancing the income. Daily pricing would actually spread this loss over the period to July 2011.

    http://www.selftrade.co.uk/market-data/gilts-bonds/gilts.php
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