Ever wondered how distributions affect unit prices or why there may be end of financial year delays to unit prices and transactions? We answer some common distribution questions and outline what to expect:
What is a distribution?
A distribution is a profit earned by a managed fund and paid to investors.
Throughout the financial year, a managed fund will earn income in the form of dividends and interest. It may also make profits on investments sold.
Under current tax law, the fund must pay all of this income and realised capital gains to investors as a ‘distribution’.
When a distribution is paid, the unit price of the managed fund will usually decrease by an amount equal to the distribution at the time.
Why do unit prices fluctuate?
When you invest in a managed fund, you are allocated a number of units in each of the funds you have selected.
Each of these units represents an equal part of the market value of the portfolio of investments that the managed fund holds.
As a result, each unit has a dollar value or ‘unit price’.
This unit price is calculated by taking the total market value of all of a managed fund’s assets on a particular day, adjusting for any liabilities,
and then dividing the net fund value by the total number of units held by all investors on that day.
Although the unit balance in a fund will stay constant (unless there is a transaction on your account), the unit price will change according to changes in the market value of the investment portfolio, or the total number of units issued for the fund.
End of financial year unit price and transaction delays
At the end of the financial year there may be delays in fund managers issuing unit prices as they finalise financial year-end distributions.
While unit prices are unavailable, certain transactions including switches and withdrawals can’t be processed. Although, pension payments during this time will be processed.
As prices are finalised, most 30 June unit prices are usually available for all investments, superannuation and retirement products by late July.
Why do managed fund unit prices decrease after 30 June?
A unit price reflects the value of a fund’s investments, including any income accrued but not yet distributed.
The unit price will usually decrease by an amount equal to the distribution at the time.
Why is there a delay in releasing unit prices after 30 June?
Finalising year-end unit prices is a detailed process and takes time due to distribution calculations and auditing requirements by the fund manager.
There is a reliance on external fund managers to provide the information. Most unit prices for external fund managers investment options are available by late July.
Why is the delay longer for some managed funds compared to others?
Managed funds invest in many underlying assets. This may include Australian or international shares, property, bonds, cash, or other types of assets.
Fund managers must wait until they have all of the relevant end of financial year information from each underlying asset before the unit prices and distributions of the managed fund can be finalised. Any delay the fund manager experiences in receiving the information they need results in a delay to calculating unit prices and distributions. The fund manager can only work as quickly as the slowest underlying asset.
How does the income of my 30 June distribution get invested?
Initially, the 30 June distribution will be credited to your Cash Account. It will then be invested as per your relevant investment instructions (if applicable).
Therefore, if possible, we recommend you do not look at your account balances during the month of July until ALL distributions are received within your account within Wrap.
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