Is it true that they return our own investment or is it a bonus they give to us
2007-03-07 14:19:53 · 5 answers · asked by Anonymous in Business & Finance ➔ Investing
The capital gains distribution is more of a curse than anything else. It is a curse because it is a government law that makes you pay taxes on what might not even be a gain but actually a return of capital. If you reinvest them, then you will will have to dig into your pocket to pay the taxes. On the other hand if you do not reinvest them, your roi will suffer greatly.
2007-03-07 14:35:54 · answer #1 · answered by Anonymous · 1⤊ 0⤋
Dividend mutual fund invests in companies that pay dividends to shareholders. Then the fund distributes them to its holders. It is not a bonus. If you don't need the money it's better to reinvest it, the fund buys extra units for you with this money.
It all sounds good as long as you don't look at the fees mutual funds charge. They charge so called MER (Management Expense Ratio) that can be quite high 2-3% a year. It means that your investment return is eaten by those fees. You don't see how much they charge you because those fees are hidden in unit prices. Before you invest in any mutual funds ask about those fees and commissions. I would suggest reading some books or looking up info on the cost of owning mutual funds.
2007-03-07 22:42:28 · answer #2 · answered by woman 3 · 0⤊ 0⤋
A mutual fund is a collection of stocks (and in some cases bonds or other investments). During the course of the year, the mutual fund gets dividends from those stocks and has gains or losses when they sell stocks. At least once a year, they pay those out to the owners of the mutual fund. I think that's the distribution you are talking about.
Until they make the distribution, they include that money in the value of the shares of the fund. When they pay the distribution, that money comes out of the fund and the share price declines by the amount they pay out. That might be why you've heard people say it's just a return of your investment. In reality, it is a payment of the earnings from the fund. I believe the government requires them to make these distributions at least once per year.
Unless you really need the money for something, I'd reinvest it. That buys you more shares of the mutual fund. Over time, you'll be surprised how reinvesting increases the value of your holdings in the fund.
2007-03-07 22:30:29 · answer #3 · answered by Dave W 6 · 0⤊ 0⤋
Dividend in mutual fund is just like interest paid on your Fixed deposit, ie profit, if any, distributed to the unit holders.Difference between the two is that interest on fixed deposits have to be paid irrespective of whether the bank is making profit or loss, in case of mutual funds , dividend will be paid only if surplus funds ie profit is there.
It is not that they are returning your own investment. It is the share of the profit on the investments made by you. The nav of the said fund will decrease to the extent of dividend declared.
If you have no urgency for the dividend funds, then it is always better to opt for growth or dividend reinvestment.Because the dividends when it reaches you will be negligible , unless a sizeable amount is invested in mutual funds and you will spend it in no time. By reinvestment option, without your knowing , your investment will grow.Hence div reinvestment is the best.
2007-03-08 01:02:11 · answer #4 · answered by vmperumal1506 2 · 0⤊ 0⤋
A Capital gain dividend is deducted from the "NAV" (net asset value) as required by law. (This reflects taxable transactions by the mutual fund).
This is not a "bonus", it is a book keeping entry. It is usually wise to have your fund "reinvest" these monies.
Read up on mutual funds as much as you can. It's dangerous to your financial health.... if you don't understand them.
2007-03-07 22:29:59 · answer #5 · answered by Common Sense 7 · 1⤊ 0⤋