A managed fund generates income from its investments – for example, through share dividends, interest on cash or fixed interest investments in the fund, or any gains made when fund investments (like shares) are sold. So in short, a distribution is profit or income made by a fund and paid to investors.
How are distributions paid?
Managed investment funds are required to pay all realised income and capital gains to investors for the financial year. Income can be paid monthly, quarterly, half-yearly or yearly, depending on the fund. You may receive your distribution as a cash payment – for instance, as a payment to your designated bank account – or as an amount that is reinvested back into the fund. As an investor, you should also receive a statement that outlines the amounts (and types) of income generated by the fund and distributed to you, which may be helpful at tax time.
How are distributions calculated?
A distribution can be calculated as follows:
The income of all individual investments in a fund for a given time period is calculated – taking into account things like share dividends or interest payments.
The fund’s deductible expenses (things like management fees and other payables) are then subtracted, leaving the total amount of income that can be paid out.
That amount is then divided by the total number of units in the fund to provide an amount of distribution per unit. For example, if the distribution for a fund was $1 per unit and an investor owned 100 units in the fund, they would receive a distribution of $100.
What does the unit price have to do with distributions?
When you invest in a fund, you’re pooling your money with other investors to access a professionally managed portfolio of investments overseen by skilled investment managers. In exchange, you’re allocated a number of units that correspond to how much money you've invested – based on the fund’s unit price at the time of investment.
Why does the unit price fall after a distribution?
When you receive a distribution for the income generated by a fund’s investments, the value of the fund reduces by the amount of the total distribution. This results in a lower unit price because income from the fund’s investments is being paid from the fund to investors, reducing the total value of the fund’s assets – a figure that is divided by the total number of units owned in the fund to determine the unit price. This doesn't mean you've lost money on your investment or that your investment in a particular fund has changed – rather, you retain the same number of units in the fund, which has simply decreased in value by the amount of the distribution paid to you. Distributions that are reinvested back into a fund are used to acquire more units in it. This means the value of your investment should not fall as you will be allocated additional units.
Why aren't distributions paid to super funds?
While managed investment options (funds) outside of super pay distributions to investors, investment options within super do not. That’s because there is a different structure – and purpose for – super, which members can't access until retirement. Generally, super balances fluctuate higher and lower over time depending on the contributions members make and the performance of the funds their super is invested in. Investment options within super contribute to super balances through the unit price, which changes daily based on the performance of each fund’s investments. Effectively, the distribution amount is retained in your super and forms part of your super balance, which over time can be used to acquire more investments in the options your super is invested in.
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Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.
Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at https://www.cfs.com.au/tmd which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.