A unit trust fund will make money
from two aspects:
- by earning dividends (from stocks) or interest (from
cash/bonds) and
- by selling investments (stocks) that have increased in
price and bond maturities.
The fund may distribute or pay out
its profits to you and its other investors according to the fund’s declared
distribution policy. Some funds’ policy is to pay out earnings yearly, some
will pay out half-yearly. Some funds specify that it does not intend to pay out
the profits but let the gains accumulate in the NAV.
Payouts when done, is usually
carried out in two ways:
- by way of income distributions.
When an income distribution is made you will receive money from the fund.
However, you could elect for this money distributed to be reinvested for
more units. Following an income distribution, the NAV of the fund
decreases.
- by way of unit splits.
The investors’ total number of units in the fund increases but the total
NAV remains the same.
As a unit trust investor, you have
made profits IF your REDEMPTION value i.e. total number of units X NAV is
higher than the amount of your Initial Investment.
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