Dividends of index funds come from dividends of index companies. On the premise of tracking the index, the index fund pays dividends regularly. Why should index funds pay dividends? What does the dividend of index fund mean to index and investors?
Why should index funds pay dividends?
First of all, let's look at the first question. Why should index funds pay dividends? The logic of dividend distribution of index funds has been introduced before.
As we all know, the net value of the fund refers to the current total net assets of the fund divided by the total share of the fund. The net assets of the fund will increase after the dividends of the constituent stock enterprises, so the net value of the fund will also increase. When dividends are distributed to investors in cash, the net assets of the fund will decrease and the net value of the fund will also decrease.
In fact, the principle of fund dividend and stock dividend is the same. Before and after dividends, the total value held by investors will not change, but the fund share will increase and the net value of the fund will decrease to the expected value.
Assuming that the net value of an index fund is 1 yuan and the investment is 1 10,000 yuan, there will be 1 10,000 fund shares. At this time, the constituent stock companies of the index all paid dividends, and the net value of the fund rose to 1. 1 yuan. The announcement of the Fund pays a dividend of 0.05 yuan each, and 65,438+00,000 shares are divided into 500 shares. After dividends, you will hold 10.05 million yuan of index fund and 500 yuan cash, and the net value of the fund will drop from 1. 1 to 1.05 yuan.
What is the significance of dividend distribution of index funds?
What is the significance of fund dividends?
For fund companies, after the dividend is distributed by index companies, the proportion of cash in the fund's net assets will increase, the position of stocks will be forced to decrease, and the effect of index funds tracking the index will become worse. Through dividends, this part of the cash can be converted into the hands of investors, so that index funds can better peg to the index.
For investors, cash flow can be obtained through dividends. If the index fund we invest in can pay dividends regularly, it is equivalent to a stable cash flow.
After investors get dividends from index funds, they can also choose to put the cash in their pockets for other purposes, or they can choose to reinvest the dividends, which is another way for the fund to pay dividends. Get the fund share through dividend investment, and the dividend reinvestment part is exempt from subscription fee.
If the demand for cash flow is not particularly high, and the valuation of the current index is in a reasonable range or undervalued, it is suggested that dividend reinvestment can be chosen, and we can use the P/E ratio of 10 as the criterion for whether the index is undervalued.
It should be noted here that under normal circumstances, the default dividend payment method of trading platform is cash dividend payment. If you want to choose dividend reinvestment, investors need to modify it manually.