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Football Index Can You Withdraw Dividends

Author:Football Prediction SiteJan 04, 2022, 10:34:09Read times
DescriptionWe all know that the fund pays dividends. Of course, the dividends of the fund need to meet certain conditions. For example, the fund can pay dividends after there is no net loss in the current period of the fund investment and the funds cu

We all know that the fund pays dividends. Of course, the dividends of the fund need to meet certain conditions. For example, the fund can pay dividends after there is no net loss in the current period of the fund investment and the fund's current year income makes up for the previous year's loss.

Dividends will be distributed to fund unit holders in cash, and fund unit holders can choose to distribute cash dividends or reinvest after dividends.

Because index funds track index performance and the investment goal is to reduce tracking errors, the dividends of index funds are special.

 

Let's first take a look at how the index responds to dividends generated by stocks?

Under normal circumstances, if a stock pays a cash dividend, then the stock price will drop accordingly, and the index corresponding to the stock will use this new stock price to recalculate the index points.

The primary goal of the index is to strictly track the index and minimize the tracking error. The index strictly followed by the index fund refers to the default index that does not consider dividends and then invests.

But in fact, index funds can receive dividends from constituent stocks, so how should we deal with this dividend index fund?

According to the tracking accuracy, it can be roughly divided into two situations.

The first situation: Index funds track the index better

Under such circumstances, if the index fund receives dividends from stocks, then the actual rise and fall of the net value of the index fund will be greater than the rise and fall of the index being tracked.

The fund actually receives dividends from stocks, but the index does not pay dividends by default.

If the fund receives more cash dividends, this will have a greater impact on the tracking accuracy of the fund. In order to reduce tracking errors, the index foundation chooses to allocate cash dividends.

This generates dividends for index funds.

The second case: Index funds are not very effective in tracking indexes

The poor performance of index funds in tracking indexes also happens from time to time. This is related to the timing of the establishment of index funds.

For example, the stock market has just experienced a large increase. If a new index fund is issued at this time, the fund must start to open positions at this time. From the perspective of risk, the fund’s position will be relatively low, and at this time it will underperform the index. The performance is normal.

Gradually, the position of the index fund will be established, and the position will also increase, but because the index has been underperformed before, it will take a while to make up for the gap that occurred before.

If the stock has dividends at this time, the index fund will give priority to using this part of the dividend to make up for the gap.

Because the purpose of index funds is to replicate the index, everything is centered on the goal of reducing tracking errors.

The dividends received by the fund will be bought proportionally into the constituent stocks of the index and included in the net value of the fund. This approach is close to dividend reinvestment.

The main source of dividends of index funds is the dividends of constituent stocks. The dividends of the constituent stocks come from the net profit of the company's growth. Are you clear about the relationship between this?

Hope the above content is helpful to you.

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