Are dividends paid out if you withdraw your money?

NewKidOnTheBlock_2

The fund I have invested in pay bi-annually and wanted to know if I invested for 3 months and then decided to switch funds, would I still get any dividends? How does it work?

Thanks

bowlhead99

The funds earn dividends from the companies they're invested in, over the course of the year. Say they earn 2% a year with no capital growth: after 3 months the £100 investment is worth £100.5, at 6 months it's worth £101, 9 months 101.5, 12 months 102.

However actually they pay out the cash semi annually. So at month zero you have £100 in a fund, at month 3 you have an investment worth 100.5, at month 6 you have £101 but they turn it into a £100 investment plus £1 dividend in your hand... Then month 9 you have the £1 in your hand and £100.5 asset value, then month 12 you have £1 in your hand and £101 in the fund, but they pay out the divs so you get £100 fund value and now £2 total in your hand.

That's grossly simplified but basically the divs are being earned all year and included in your asset values all year round and every so often they pay out. You don't have to wait for pay out date to "earn" the divs; if you left after month 3, you would get the full 100.5 in your sale proceeds, but no actual dividends - while if you left after month 6 you would get a physical dividend of £1 to go with your sale proceeds of £100.

ScottyLP

Depends on the type of unit you hold. Bowl head seems to have described accumulation units. Where as with inc/distribution units, providing you hold the units on the x dividend (XD) date, you will get the dividend payment.

bowlhead99

ScottyLP wrote: »

Depends on the type of unit you hold. Bowl head seems to have described accumulation units.

That wasn't the intention and I can't see it reads like that?

The OP was asking about a fund that pays bi annually. So, every day of the year the fund is earning dividend income from its investments and the asset value of the fund increases - and you can get out whenever you like (say after 3 months) at that increased asset value, i.e. getting the benefit of the income which has been earned by the fund but never physically receiving a dividend.

At two points a year it sends all that income to the owners of the fund, as a dividend, so the fund assets become lower and the owners of the fund have the dividends in their own hand instead of as cash within the fund. That is an 'income' or 'distribution' version of the fund.

If it was an accumulation version of the fund it would never pay out the £1 dividend to the owners, it would just declare it at the semiannual points so the owners can do their tax returns but it would reinvest the money.

with inc/distribution units, providing you hold the units on the x dividend (XD) date, you will get the dividend payment.

Correct.

princeofpounds

You would not get dividends from the fund unless you held it over one of those two ex-dividend days.

However, it is basically irrelevant for investing purposes (not for tax) as any dividends paid by the underlying investments accumulate in the fund in an ongoing basis until the fund pays them out, and the value of the fund is adjusted to account for that.

On the days the fund goes ex-doc the value of the fund drops to account for the value of the dividends that have gone to investors.