Index Tracker Dividends

Rymo_2

Hi, a simple question, do Index Tracking funds pass on the dividends to investors?

i.e, If I bought a UK 100 tracker fund today (one off lump sum) at 5980 and sold it in 10 years with the market back at 5980 would it be worth the same as i bought it for (minus charges) or would I have benefitted from the dividend payments into the fund in between.

A simple but important question as I am looking to invest long term in one.

The particular fund I'm looking at is Fidelity Moneybuilder UK Index .

Hope someone can clear this up for me.

Rymo

dunstonh

do Index Tracking funds pass on the dividends to investors?

yes

i.e, If I bought a UK 100 tracker fund today (one off lump sum) at 5980 and sold it in 10 years with the market back at 5980 would it be worth the same as i bought it for (minus charges) or would I have benefitted from the dividend payments into the fund in between.

Modern trackers do not follow the value of the index. Instead, you invest in replication of the index which would have some tracking error but with dividends as well.

The particular fund I'm looking at is Fidelity Moneybuilder UK Index .

Whilst it is not bad, there are a better (Vanguard, Blackrock Class D, HSBC, L&G). Also, investing 100% into UK equity is poor investing. The UK stockmarket has been one of the worst performing for decades. There is no expectation that it will be the best or near best again. By going 100% UK equity, you are putting all your eggs in one basket and not a very good basket at that.

SnowMan

Rymo wrote: »

Hi, a simple question, do Index Tracking funds pass on the dividends to investors?

i.e, If I bought a UK 100 tracker fund today (one off lump sum) at 5980 and sold it in 10 years with the market back at 5980 would it be worth the same as i bought it for (minus charges) or would I have benefitted from the dividend payments into the fund in between. .

A simple but important question as I am looking to invest long term in one.

The particular fund I'm looking at is Fidelity Moneybuilder UK Index .

Hope someone can clear this up for me.

Rymo

Yes. You do benefit from the dividends as well. If you invest in the accumulation units (from memory I don't think there is a distribution unit version) the dividends net of charges are reflected through a gradual increase in the unit price.

You mention 100 index but the Fidelity Moneybuilder UK index is of course tracking the FTSE all share index. Generally it is better to track the FTSE all share as it is invested in a slightly wide range of shares (albeit the shares that are in the 100 index are the major part of it). Nobody can however tell you if the FTSE 100 or FTSE all share index will do better in the future however just depends if large or smaller companies outperform.

At 0.3% TER about as good as it gets. Good choice of fund.

Use your investment ISA limit and invest under the ISA wrapper (up to that limit). Avoids any capital gains issues or higher rate taxpayer dividend tax issues.

RetiredInThailand

I have some ETF FTSE trackers that distribute income, and I also have a FTSE250 index-tracking fund that accumulates. So it's really up to you which you prefer.

middlepuss

If the index is at the same level in 10 years, if you buy distribution units the unit price will be the same in 10 years' time. Almost. Some funds take the management charge out of the capital value, so the unit price would go down a bit. Others take charges out of income. And there might be a small tracking error which could be a plus or minus effect.

If you buy accumulation units, the dividends from the underlying shares are put back into the fund and the unit price rises. So in 10 years the unit price will be quite a bit higher.

Third option is to buy distribution units but to have the unit trust manager re-invest the dividends for you by buying more units. So in 10 years time you have a lot more units. The value of a holding of accumulation units and of distribution units with dividends re-invested should be about the same in 10 years time.

Rymo_2

Thank you all for your replies, they have certainly helped to clear this up for me.

Thanks dunstonh and SnowMan,

My intention is to invest in a spread of funds:

1. Aviva Inv Intl Index Tracking 1
2. BlackRock CIF Emerging Mkts EqTkr A
3. Fidelity Moneybuilder UK Index
4. HSBC UK Gilt Index R Acc

I think this combination will give me a good spread of regions / sectors.

Rymo