Dividends - what happens in collective investments such as funds ?

property.advert

The last time I had collective funds was back in the 1990s and as I am thinking about some collective investments, I have a couple of questions.

Keeping the argument simple, say you buy a FTSE tracker, then in a perfect world, devoid of charges, your investment would track the FTSE perfectly. Thus, if you bought at 5000 and sold at 6000 you would have made a 20% profit.

But what happens to the dividends the underlying shares receive ? I know that on ex div date, the share price will fall back and thus, your perfectly weighted fund would fall back. But whereas a shareholder would receive the dividend cheque, you do not actually own the underlying investments directly. So how is the dividend handled ?

I used the FSTE tracker as a simple medium but I'd appreciate it extrapolated to other funds.

Years ago I was aware of accumulation and income units but that was donkeys ago.

Also, in general terms, does the performance of a fund include the dividends, presumably reinvested as if it does, it does not truly represent the actual performance of the underlying shares.

Thanks.

edinburgher

Keeping the argument simple, say you buy a FTSE tracker, then in a perfect world, devoid of charges, your investment would track the FTSE perfectly

Well, apart from tracking error!

So how is the dividend handled ?

In the funds I invest in (all of which are aiming for growth, not income) the dividends are paid out
once a year and used to purchase new accumulation units.

Sceptic001

iShares ETFs pay dividends (usually quarterly or half-yearly) just like any other shareholding.

dunstonh

Keeping the argument simple, say you buy a FTSE tracker, then in a perfect world, devoid of charges, your investment would track the FTSE perfectly. Thus, if you bought at 5000 and sold at 6000 you would have made a 20% profit.

Thats an old fashioned style of tracker that hasnt been around for a long time. Virtually all modern trackers will get the distributions as you would expect.

You either have them reinvested back into the fund to buy more units (or paid out) or have it factored into the unit price depending on whether you pick income or accumulation units.

property.advert

dunstonh wrote: »

Thats an old fashioned style of tracker that hasnt been around for a long time. Virtually all modern trackers will get the distributions as you would expect.

You either have them reinvested back into the fund to buy more units (or paid out) or have it factored into the unit price depending on whether you pick income or accumulation units.

Just used the FTSE tracker as a simple example; wouldn't ever have one.

Seems not a lot has changed then with inc and acc units.

So I guess you'd have to look at income units to assess the underlying performance as it would be utterly blurred if using accumulation units.

Then if it is accumulated, does the fund screw you for a spread on purchase which you could have rebated via an intermediary ?

sabretoothtigger

I read that 80% of ftse profit is derived from outside the uk.

You cant rebate normal market spread if it was an etf that is. There shouldnt be any additional spread on an index tracker most of the time, sounds like a good question but I presume its a normal purchase done at the buy price.
I would generally want income just to maybe give me a reminder on the funds performance