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About fund distributions
You may have many questions about your investment returns. This section lists some of the most popular questions asked. Hope it can answer some of your questions.
What is a distribution?
A distribution is the income earned by a fund, which is fully paid out to all investors each financial year. This income is usually made up of dividends from shares owned by the fund, or capital gain generated when assets are sold by the fund.
Not all funds distribute income, however. This may be because the fund is designed to provide growth rather than income to investors. A growth fund will therefore be invested in assets that provide long-term growth rather than an income stream.
Alternatively, a fund may not distribute if it hasn’t earned any income in that financial year. This can happen when there’s a downturn in markets and the fund may be carrying losses.
Distributions are paid to you at certain times during the year, usually on a quarterly basis.
Reinvest your distribution to grow your wealth.
Automatically reinvesting your distributions can help you grow your investment. You’ll benefit from ‘compounding’: the snowball effect that occurs when the income your investment has earned is also put to work. While the distributions from your investment plan may be relatively modest, the wealth added to your plan over the long term can be substantial.
Find out more on how you can re-invest your distributions.
Why does the unit price fall just after distribution?
You might notice that the unit price of a fund usually falls just after a distribution is made. Profits and income received by a fund are reflected in the unit price.
When a distribution occurs, the accrued income is paid to investors. Consequently, the unit price will tend to fall by about the same amount as the distribution.
What are my options when I get a distribution?
Some people rely on their distributions for regular income, while others would prefer to invest that income. For this reason, some fund managers offer a regular payment facility to investors who want to be paid a regular income.
Investors who don’t need this distribution income immediately can choose to re-invest it, usually at no fee. Re-investing distributions increases your chance to get higher capital growth due to the effect of compounding returns.
How are profits made from sale of assets?
Profits are made when a managed fund’s assets (such as shares) increase the value and are sold by the fund manager. Whenever profits are made from the sale of assets such as shares, they must be distributed to investors within that financial year.
How are distributions taxed?
Distributions attract income tax at your marginal rate at the end of the financial year. Your annual tax statement will advise you of your entitlement to any foreign tax credits and imputation credits from the funds.
We recommend investors seek the advice of an accountant to calculate their taxation position.
Do I get distributions from my superannuation fund?
No. Superannuation funds can’t pay distributions to unit holders, as the purpose of these funds is to generate long-term capital growth instead of regular income.
Superannuation funds are governed by different legislation and tax treatment to general investment funds. For example, capital gains tax is not applied to the funds.
However, other taxes such as contributions tax may be applied.