Monday, August 11, 2008

Dividends of Unit Trust/Mutual Funds

One year ago, I invested in a PublicMutual fund called PBADF. After one year, I receive my dividends from my investment in unit trust or some call it mutual funds few days ago. I was delighted and very happy that my investment in unit trust really bear fruit after one year.

The dividends I get from the investment is not a big sum of money. It is roughly RM150.00 to RM180.00 of my investment RM2000.00. I have calculated the return of my investment is roughly 7.8% to 7.9% per year.

I am quite happy with the performance of the fund I invested because 7.8% to 7.9% per year is quite good. If I invest my money in the bank in fixed deposit, then I would only get around 3.5% per year. So, the investment in unit trust has doubled my interest per year.

Actually, I do not get the money of the dividends. The dividends are auto-reinvested to help me buy more units of the fund. So, I am now having more units at hand and I will get even more dividends at the end of this year.

Basically, unit trust is quite good as a long term investment vehicles because the reinvestment of dividends will increase the number of units you have over a long period of time.

Examples of Calculation:

You bought Fund AAA with RM1000 at RM0.25 per unit. So, you now have 4000 units of Fund AAA at hand.

After a year of investment, the Fund AAA finally pay you dividends. Let say it pays RM200.00 as dividends which will be 20% per year.

The dividends will be reinvested automatically to help you buy more units. If the price per unit at that time is RM0.30, so reinvestment of RM200 of your dividend will help you buy 666.67 units.

After 1 year, your total number of units will be: 4666.67 units. What if you hold the Fund AAA for 10 years? How many units you will have and how much dividend per year you will have? Assume the Fund AAA is paying 10% dividends per year for 10 years.

Look at the table below:

Year

Units at hand

Dividends (RM)

1

4000

200

2

4666.666667

233.3333333

3

5444.444444

272.2222222

4

6351.851852

317.5925926

5

7410.493827

370.5246914

6

8645.576132

432.2788066

7

10086.50549

504.3252743

8

11767.58973

588.3794867

9

13728.85469

686.4427345

10

16016.99714

800.849857

After a period of 10 years, the number of units you have is more than 16,000 units and it is helping you to generate more than RM800.00 dividends at the 10th year. You can see that your investment is increasing fast every year and you do not need to manage it at all. If the price of the Fund AAA is RM1.00 per unit, you can sell all your units at hand and all those units will turn into cash of more than RM16,000.00. Your initial investment is only RM1000.00.

Bear in mind that this example is only an initial investment of RM1000.00. What if you are investing RM10,000, RM50,000 or RM100,000 and you are investing for even longer period of time? The answer is simple, if you start with RM10,000, you will have over 130,000 units. If the price of Fund AAA is RM1.00 at 10th year, you sell all your units and you will get RM130,000.

If you plan to start with RM100,000, you will end up having 1375173 units and if you sell all units at RM1.00, YOU ARE A MILLIONAIRE RM1,375,173.00 after 10 years.

Notice: Not all funds perform at such a great rate of return. You need to consult your financial consultant or unit trust manager for help and advice.

You can visit the Public Mutual website to have a look at the current funds price. The price per unit, the higher return.

I am going to save more money and play focus investment for my unit trust investment.

The Moral of the Story:

It Is the Best to Start Investing Early!!!

3 comments:

doswheeler said...

Wow dude that is pretty fascinating. Very interesting stuff indeed.

Jt
http://www.Ultimate-Anonymity.com

Greenleaf said...

Hi doshwheeler,
Thanks for coming to my blog. :)

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