Distribution by a mutual fund

Dear Mr Tan,

Is it better to invest in a fund that pays an annual dividend, or a fund that accumulates the dividend?

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REPLY

It does not make any difference. If the fund earns a total return of 12% (comprising of income and capital gains), the unit price will increase by 12%. If it pays a dividend of 5%, the unit price will drop by 5%. The total return will still be 12%.

In the USA, the income tax authority makes it mandatory for the fund to distribute the dividend and the capital gain separately, so that the investor can report them for payment of income tax and capital gains tax.

This requirement does not apply in Singapore.