Monthly Income from funds

Jackie079

Hi everyone,I'm very very new to this investing in Funds business, but I have been thinking I would like to invest mainly for monthly income, and hopefully some capital growth. With Hargreaves Lansdown, they have some funds that pay dividends monthly and you can invest £50 monthly into these. I was just trying to work out how you would estimate the monthly return. Is there a sort of mathematical equation that, based on your investment and the price of the share (over the month ??) could you calculate what you may get ?sorry if this sounds ridiculous, I realise some months you may get nothing, but I was just trying to guage what you get for any investment,many many thanksJackie

SeanW

When fund prices for such funds are quoted, there is usually a yield figure stated which I supposed could be used as a guide, but nothing is guaranteed. This figure will be per year.

Do you actually need to take the income from these funds? Most funds will probably pay 2 or 4 times a year.

dunstonh

Many funds pay monthly, quarterly, half yearly or yearly. By spreading the funds you can average out the yield to give you a 5% p.a. income and get a fairly even monthly spread. It will never be perfect as yields vary.

The other option is to have the income reinvested and take a fixed monthly amount.

Jackie079

Hi guys,thanks for your replies. So using the yield percentage as a guide, would that be of the share value, or of your investment ?dunstonh, you mentioned it was possible to have the income re-invested and then take a fixed monthly amount- how would that work ? could I just ask for the money to be re-invested and then I take a fixed amount at a figure I decide, or H&L does ?many thanks againJackie

RayWolfe

Yield is based upon value of investment. Investment worth £1,000; yield 2.5%; annual income £25.00; monthly payment £2.08. (All roughly and based in past dividends not projected)
H-L will not give you a regular monthly payment but you can sell as much as you want each month and receive the proceeds. You can specify the number of units or you can say you want to sell £X worth.
Question:
Why would you want to do a regular payment in AND take money out at the same time?

Jackie079

Hi there,I presumed a monthly dividend would perhaps come from a lump sum investment. I thought investing monthly would perhaps be better for something that paid twice yearly or something. At least I think that's how it might work,thanksJackie

dunstonh

Why would you want to do a regular payment in AND take money out at the same time?

That is a very good question. You wouldnt take an income on a monthly contribution. There is no logical reason to do so.

dunstonh, you mentioned it was possible to have the income re-invested and then take a fixed monthly amount- how would that work ?

Say you want 5% p.a. paid monthly, the provider will ecash units each month to make up the fixed payment. Then the natural income generated on the funds is reinvested to make up for it. A bit like having interest paid on a savings account on a half yearly basis but you making monthly withdrawals.

could I just ask for the money to be re-invested and then I take a fixed amount at a figure I decide, or H&L does ?

If you use HL, you have to tell them what you want. They will not advise you. Their advice arm is very expensive if you do ask for advice and you would be better off with a typical IFA.

cheerfulcat

Jackie079 wrote: »

Hi there,I presumed a monthly dividend would perhaps come from a lump sum investment. I thought investing monthly would perhaps be better for something that paid twice yearly or something. At least I think that's how it might work,thanksJackie

Normally, someone looking for immediate income would make a lump sum investment - someone making regular ( monthly or otherwise ) investments is normally looking for long(ish) term growth. What is your position? I'm a bit confused...

Jackie079

Hi there,dunstonh, as I said in my post, I would only expect a monthly income on lump sum,.as cheerfulcat has re-iterated. The monthly savings plan is just another option I was looking into,thanksJackie

jamesd

Please say more about your circumstances. At the moment your plans are a little confusing because we don't really know enough to have a good overall picture.

Using HL you can choose to have income either paid out to your bank account, held as cash for you to reinvest yourself or automatically reinvested once the amount exceeds 50. Lump sum withdrawing of cash (after a sale, not the distribution yield) has a 25 charge, I think.

One example of how you might even out income is the pair of the Invesco Perpetual Income and High Income funds. Each pays distributions twice a year but three months offset from each other, so holding both would produce quarterly income.

Funds that can pay income often have a choice of income (inc) or accumulation (acc) units. The income ones pay out the income, the accumulation ones reinvest it in the fund automatically. If you don't want an income you'd just choose the acc version, then switch to the inc one if your choice changes.

Given the way HL works for income you'd probably be best served by setting up a high interest savings account with six months or a year's worth of income in it initially then using that to provide your regular income via standing order transfers into your main bank account. Then have the income from the funds paid into another account that you use only to top up the savings account. Once a year you sell some investments to top up the savings account by the difference between the distributions you've received and the income you're taking. You could do this as part of your annual fund rebalancing process. This keeps the irregular income away from the regular spending money and smoothes out the income so you don't need to wonder about it from month to month.