What is a distribution fund?

rothers

In plain English please guys, I'm new to this. What are the main features and are they a good option for a small investor?

Thanks for your help!

eranou

rothers wrote: »

In plain English please guys, I'm new to this. What are the main features and are they a good option for a small investor?

Thanks for your help!

Hi at my job I deal with a Distribution fund for a life assurance company.

Our Distribution fund aims to provide income without eating into any of the capital investment,

It will make a distribution on a regular basis, e.g ours makes one twice a year where in basic terms the profit the fund has made since the last distribution is switched into the cash fund, the cash units can then be paid out so as not to use any of the initial capital.

However it doesn't necessary have to do this, & the client can elect to have the cash units reinvested back into Distribution if they would rather achieve growth.


This is the simplest I can put it

cheers

dunstonh

distribution funds typically have an objective to provide an income and a small amount of growth. They are usually multi-asset (diverse spread across areas). Distributions can be paid out or retained by the investment to provide an increase in value.

are they a good option for a small investor?

Depends on what the investor is trying to achieve. Also, distribution funds are not all one risk level. You can find versions across the risk scale.

rothers

Thanks for your replies!

Dunstonh, I really appreciate your help on here. You recently suggested the investico perpetual distribution fund as being one of many whose returns are better than the pmas 10 year savings plan. I don't particularly want an investment to give a regular income, I'd prefer to re-invest it and keep it growing for a period of about 10 years. Would the above fund be a good way to do this? Also, if I invested a lump sum would I be tied in for a specific time? Which are the best performing funds for my needs?

As I said, these forums and the professionals who post are invaluable to newbies like me. I totally understand, however, that any decision that I make is mine alone. I will obviously research any suggestions made.

Many thanks.

Lokolo

You can do that yes, you buy the accumulation version (ACC).

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/invesco-perpetual-distribution-accumulation

Whether or not it's good for you isn't something we can say on the limited information you have.

Funds don't have to be bought for a certain time period, but it takes a few days to buy, and a few days to sell.

There are many different areas you can buy funds for, equity income, equity growth, global equity growth, emerging markets, bonds etc.

Shaolin_Monkey

If you click this link - http://www.trustnet.com/Investments/Perf.aspx?ctr=QS&univ=U&Pf_Sector=U:CMG it will show you all of the funds available in the same investment sector as the Invesco Perpetual Distribution Fund. It might be helpful to just have a browse around some of the different funds on that site. It shows past performance figures, charts, what investments the funds are holding etc. They also assigns a "risk score" which is a measure of the volatility of a fund relative to the FTSE 100 index (FTSE 100 = Risk Score of 100). The IP Distribution fund currently has a score of 42. Within the same sector the score ranges from the 20's to the 70's so there's quite a range of different investment approaches.

Funds are categorised by the IMA sector they are in. The sector that the IP Distribution fund fits into is the "Mixed Investment 20% - 60% Shares" sector. Funds in the sector have to hold a mixture of investments, of which between 20% and 60% of the overall assets can be held in equities/shares. The balance may be held in company or government bonds, cash, property or in some cases other more obscure investments. The sector used to be called "Cautious Managed" which gives you a clue at the sort of investor it's aimed at.

As already said, funds don't have a minimum investment period but for most people they should only be considered for medium to long term investments (5 years + ideally). The shorter the period, the greater the chance of losing money. They can be set up for regular payments as well as lump sums, and of course you can re-invest income.

My personal opinion is that the Invesco Perpetual fund is run by an experienced team and has been well proven over a long term, so for a new investor if you are looking for a fairly cautious mixed asset fund, you could certainly do worse. Other's I've used myself in that sector are the CF Ruffer Total Return fund, and Cazenove's MM Diversity fund, which although not "distribution" funds are also quite conservatively managed that have performed well over a longer term.

rothers

Awesome, you lot are brilliant! Cheers!

Totton

I don't particularly want an investment to give a regular income, I'd prefer to re-invest it and keep it growing for a period of about 10 years.

With a time horizon of 10 years you may find better choices for slightly higher risk. Something like IP Distribution may have returned around 65% (sector average was 67%) whilst Ruffer Eq & Gen gave 119%, Troy Trojan 123% or even the derided multi managers such as Jupiter Merlin Growth returned 159%.

I'm not advocating you take on higher risk, just thinking out loud that with a 10 year horizon it may be worth considering, certainly I would expect your return to be much higher than PMAS going on their performance when I was with them :-) The beauty of something like PMAS is salary deduction where you don't get to see the money before it is taken, a little like the taxman but at least you get a return at the end. For that reason if you do have salary deduction of PMAS then that for me would be a plus but if you are wanting pure growth, there may be better options.

HTH,
Mickey

rothers

I do have salary deduction but I'm disciplined enough to do it via standing order (I hope ;-) ). Cheers.

BarrBru

Historically a distribution fund was so called because it distributed the natural income (dividend or interest) for the underlying security (share, fund, bank account etc).

It's evolved a wee bit but the historical pretext frames its evolution in to a mixture of growth and income or however it's constructed.

If you reinvest income/dividends instead of withdrawing them, many studies have shown this to be one of the most profitable strategies.

Have you considered an investment trust rather than a fund? This is type of fund too, in fact it's the original type from Victorian times but on average they perform better than other types of funds (lower charges,has an independent board, doesn't have to manage flows of investor cash).

I either invest in shares direct or use investment trusts.

dunstonh

Whilst investment trusts can offer some advantages, they can bring some negatives for people that dont know what they are doing and they no longer have a charges advantage of unit trust/OEICs