Understand fund dividend distribution


Investors who look for regular dividend return may be concerned about funds' dividend distribution. Since not all funds are obliged to distribute dividends and different funds have different dividend policies, it is important to know how to read the information relating to dividend distribution of funds whether in offering documents or marketing materials.

When reading the materials about the features of dividend distribution of funds, investors are reminded to read between the lines. Even if a fund would make regular dividend payment, you should get to know if this is subject to the discretion of the fund management company. Some funds may highlight or advertise in their marketing materials that they aim to make regular dividend payments to fund unit holders, but still the fund managers have the discretion on whether or not to distribute any dividend according to the funds' relevant dividend policies.

Investors are always reminded that unless being specified in the offering documents, the dividend payments, dividend amounts or dividend rates of funds should not be regarded as guaranteed and that they should note the following:

  • Frequency: the dividend payment may not be made on a regular interval, eg monthly, quarterly or annually. The fund management company may exercise its discretion not to make any dividend payments due to specific reason.
  • Dividend rate:  the rate of dividend may vary from time to time and is subject to the discretion of the fund management company.

Investors should also be aware of the source of dividend payment, as the fund can pay from its net distributable income or its capital. If a fund distributes dividends from its capital, this may result in an immediate drop of the fund's net asset value. Moreover, this would reduce the fund's capital available for further investment and may affect its value in the future.

Investors may find out the information of funds' dividend distribution in the marketing materials such as advertisements. However they must understand that these materials are not offering documents and therefore cannot provide all the information for making an informed decision. As such, investors should always refer to the offering document (including the KFS) to understand more about the fund's distribution policy.


24 May 2019