Note: This is a simplified explanation of how distributions impact fund prices. It does not detail the impact on funds that do not declare distributions, nor does it take any tax implications into account.
The underlying assets held by a unit trust fund may earn income – this is generally made up of interest and/or dividend income. Combined, this is referred to as distributable income. Operating expenses* are deducted off this income before it becomes part of the fund’s asset value. This means that the fund’s daily unit price** is based on the current value of all the assets plus the income earned (minus the operating expenses) divided by the number of units in issue.
How the Old Mutual Income and Old Mutual Bond Funds’ yields are calculated
While a money market fund’s yield is calculated using an average of the previous seven days’ yield, the yield for income and gilt (bond) funds is calculated daily. To arrive at this ‘running’ yield, the estimated daily income for each instrument is expressed as a percentage of the instrument’s market value. The running yields for all the instruments held in the fund are then weighted according to their market value, added together and annualised to arrive at a running yield for the fund as a whole. This calculation is net of fees (i.e. after ongoing service fees have been deducted).
It is important to note that the published yield is a historical reflection of income generated by the fund and is not a guarantee of the future yield. The body regulating the unit trust industry, the Association for Savings & Investment SA (ASISA), is currently reviewing this method of calculating the yield for interest-bearing funds.
How are distributions calculated?
Note: This is a simplified explanation of how distributions impact fund prices. It does not detail the impact on funds that do not declare distributions, nor does it take any tax implications into account.
The underlying assets held by a unit trust fund may earn income – this is generally made up of interest and/or dividend income. Combined, this is referred to as distributable income. Operating expenses* are deducted off this income before it becomes part of the fund’s asset value. This means that the fund’s daily unit price** is based on the current value of all the assets plus the income earned (minus the operating expenses) divided by the number of units in issue. As you can see, income generated by the fund is factored into the unit price on a daily basis.
Our funds pay out distributions after a predetermined period of time – generally quarterly, six-monthly or annually. The exception is the Old Mutual Money Market Fund, which declares income daily and pays out a monthly income. As a result, income does not form part of this fund’s unit price.
Funds generally declare their income on the last day of a predetermined period and pay it out a few days later. Investors can then choose to have it reinvested to buy more units or to have it paid into their bank account.
*The annual service fee (also referred to as a service charge) covers ongoing portfolio management and administration expenses (i.e. operating expenses).
** Daily unit price is also referred to as the NAV (net asset value) price.
As you can see, income generated by the fund is factored into the unit price on a daily basis.
Our funds pay out distributions after a predetermined period of time – generally quarterly, six-monthly or annually. The exception is the Old Mutual Money Market Fund, which declares income daily and pays out a monthly income. As a result, income does not form part of this fund’s unit price.
Funds generally declare their income on the last day of a predetermined period and pay it out a few days later. Investors can then choose to have it reinvested to buy more units or to have it paid into their bank account.
*The annual service fee (also referred to as a service charge) covers ongoing portfolio management and administration expenses (i.e. operating expenses).
**Daily unit price is also referred to as the NAV (net asset value) price.