Dividend stocks are very popular among investors. But what actually happens with the distribution in funds and ETF systems?
• Dividend shares popular with investors
• Fund and ETF investors also benefit
• distribution vs.
In order to be attractive for investors, many stock corporations pass on part of their profit directly to their shareholders in the form of dividends. Anyone who has a share in the deposit on the day of the Annual General Meeting will receive the full distribution.
Many investors like to invest in shares with high distributions, because they offer a double advantage: the shareholders can benefit from both course increases and high distributions. High dividends can even serve as a buffer for price losses. If you have individual shares, the matter is clear, then the dividend automatically ends up in the account, which belongs to the investor’s depot. But what happens if you have invested in funds or ETFs (Exchange Traded Funds – Börsen traded index fund)?
Fund and ETF investors also benefit
First of all: Even those who do not have individual stocks, but instead have fund or ETF shares, nevertheless benefit from the dividend distributions of the companies. Because the companies pay their distributions to the editors of the ETFs and equity funds – and they accept the dividends on behalf of the investors.
Then the funds and ETFs pass on the dividends obtained to investors. However, there are two variants: In the case of so -called distributing funds, the dividend is regularly transferred directly to the reference account connected to the depot once a year. In addition, there are also those funds and ETFs that retain the released dividends and reinvested into the stocks contained in the index without additional need for action.
Thesauring
In this second variant, also called the thesauring, the fund’s assets and the share value of the fund are constantly increasing. Investors benefit from the compound interest effect, i.e. not only the original investment amount will interest, but also the additional earnings amount.
It is interesting to know that the number of shares in the investor depot always remains the same when it comes to the thesauring. This means that investors do not receive any additional fund or ETF shares through the reinvestment of the dividends. Instead, each share becomes a little more valuable – the course therefore increases more than with a distributing fund or ETF.
So if you have set yourself the goal of long -term asset structure, for which, thesauring funds are recommended, because you save yourself the higher effort and, on the other hand, the fees for manual reinforcement.
Automatic rework
It should not be confused with the automatic reinforcement: so that the compound interest effect can be used with distributing funds, many fund companies optionally offer their customers an automatic reinforcement of their yields on special conditions: instead of demanding the usual issue surcharge of up to five percent of the investment amount , the companies do without them in whole or at least partially on the automatic reinforcement of distributions.
On the day of the distribution, as a result of the payments to the shareholders, the fund’s assets and thus also the share value of each fund share shrink. Those investors who have chosen the option of the automatic rework will receive new fund shares in the same value instead of the distribution. The total of their fixed assets remains constant, but is distributed to more shares.
In order to find the suitable fund or ETF, it is definitely advisable to carefully read the fund prospectes.
Editor finance.net
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