Mutual Fund dividend option

In mutual funds, dividends is not an additional income but just a withdrawal from your own money

A mutual fund's NAV already reflects the full value of the stocks or bonds held in its portfolio at current prices. So if a fund sells some of the securities, it is only converting a portfolio holding onto cash out of which it pays you Dividends. Therefore, dividends is not an additional income but just a withdrawal from your own money.

When a fund realises profits and pays it out to you, the NAV has to reflect the lower value of securities remaining in the portfolio. This is the reason for the fall in NAV after a dividend outflow. For example, if a fund has NAV of R50 and declares R2 dividend, the fund will have to sell portfolio holdings amounting to R2 in the market and pay this out as dividend. The NAV will reduce by this sum and become R48.

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