What are the ways for the money fund to pay dividends?
There are two ways for money funds to pay dividends, one is cash dividend, and the other is dividend reinvestment. Among them, cash dividend refers to allowing investors to directly get cash returns and the funds directly return to the investor's account; Dividend reinvestment is to buy cash dividends back to the fund, which is equivalent to increasing the fund share. One advantage of dividend reinvestment is that it is free of handling fees, and the share of funds held by investors has increased, but there is no need to pay subscription fees, which is equivalent to saving some costs.
What is fund dividend?
Fund dividend is to distribute a part of fund income to fund investors, which is originally a part of the net value of fund shares. For example, an investor holds 500 funds with a net value of 1.5 and total assets of 1.5×500 = 750 yuan. Now each fund has to pay a dividend of 0. 1 yuan, and the money he gets is 0. 1×500 = 50 yuan, and the net holding value becomes 1.4.
Therefore, before and after the fund pays dividends, the total assets remain unchanged and there is no additional income.
Why pay dividends?
1 Decrease unit net value
In the market, many people have "acrophobia" about high net worth and are afraid to buy high net worth funds. Therefore, fund companies make the net value of funds look less high through dividends, attracting more investors to buy fund products.
2 marketing gimmick
Funds can only pay dividends if they make money. People who don't know the truth can easily associate "dividends" with "good things" and will like such funds very much.
3 Adjust the investment strategy
Dividend is to turn part of the income into cash and distribute it to investors, which is equivalent to letting investors redeem part of the fund and allowing fund managers to reduce their positions without violating the regulations.