Dividend paid from a Fund

Mr, Tan,
For the STI ETF, what happens when a dividend is declared? How is it distributed to the investors?

I have the same query about the NTUC Combined Fund which i recently bought - what happens to the dividends declared on the shares held by the funds? Do these dividends increase the value of my investments?

REPLY

The STI ETF declares a dividend every six months. Currently, the dividend paid out represents about 3% of the value of the assets. It is the average dividend paid by the underlying shares.

When the dividend is paid, the net asset value of the fund will drop by this amount. The share price will drop slightly to reflect this payment. After that, the share price should increase, in line with the underlying value of the shares..

In the case of the NTUC Income Combined Fund, there is no dividend payment. The dividends that are received on the underlying shares are re-invested. The price of this fund will increase due to the growth of the underlying shares and the dividends that have been received.

If you wish to receive a payout of (say) 5% from the from the Combined Fund, you can encash 5% of the units that you hold. As the underlying value of the shares is expected to grow by more than 5% (on average), the value of your investments should remain intact. You have the choice of deciding on the amount that you wish to encash each year.