Which method is better for fund dividends?
The advantages of cash dividend and dividend reinvestment are as follows:
Cash dividend refers to the fund company's distribution of fund income to investors in cash, similar to the dividend paid in the stock market; After the dividend is implemented, the fund share of the holder will remain unchanged, but the net value of the fund will decrease. For example, the net value of a fund is 2 yuan. After the cash dividend 1 yuan, the net value of the fund becomes 1 yuan. In fact, for investors, the assets of cash dividends have not increased, but some fund shares have become cash.
The advantages of cash dividends in investment can be used to obtain the income of investment funds. Through cash dividends, you can get some cash without tax deduction or handling fee, that is, there is no handling fee for selling, which is also a way to realize the fund. And if the fund falls, it also reduces the risk.
Dividend reinvestment is to convert the fund's dividends into fund shares and continue to buy funds. Dividend in this way, investors' fund share will increase. The advantage is that investors' income will increase in the form of compound interest, and they will continue to use dividends to buy funds and continue to generate income, so those who use dividends will also generate income.
In addition, when dividends are reinvested, there is no subscription fee when dividends are converted into fund shares. However, if it is a cash dividend, it is a new subscription fund to buy funds and pay dividends, and a subscription fee is required. Therefore, if you want to continue to invest in funds with dividends, the cost of reinvesting dividends is obviously lower.
It can be seen that we can't judge which fund dividend method is better. Cash dividend and dividend reinvestment have their own advantages. The advantage of cash dividend is the disadvantage of dividend reinvestment. Cash dividends can be used for savings, which is to bear the risk of losses caused by the decline of more funds. Dividend reinvestment can enjoy the replication growth of fund return rate, while cash dividend can not enjoy the compound interest growth, and the later profit is lost because of the decrease of holding share.
According to the advantages and disadvantages of cash dividend and dividend reinvestment, it may be suitable for different investors. For relatively conservative investors, it is more appropriate to choose cash dividends, because it can guarantee investors' income. In addition, cash dividends are more suitable for investors who need to cash their funds regularly. Because according to the regulations, the fund needs to pay dividends at least once a year. If you can meet the needs of dividends and liquidation, you don't have to redeem the fund yourself, and maybe you can reduce some liquidation costs.
For enterprising investors, they are more inclined to pursue higher returns, so it is more advantageous to choose dividend reinvestment. Dividend reinvestment is also more suitable for investors who want to make long-term investments, because for long-term investors, there is no cash demand in the short term, and dividend reinvestment can effectively improve their return on investment.
It should be noted that after purchasing the fund, the default is cash dividend. If you want to reinvest in dividends, you need to modify it yourself. The modification method is to open the purchased fund through the channel of purchasing the fund by yourself, find the dividend method, and then choose the dividend for reinvestment.