How the Unit Trust Distributions Are Calculated?

A unit trust distribution represents a portion of the total income that it earns during the year. However, there are still many do not know how to calculate the unit trust distributions. Let me share by creating a simple scenario which will help you to understand better on the calculation.

Let’s take an example:

You own 4000 units of a unit trust. On May 31st, before a distribution, the unit trust is valued at RM0.27 per unit. So, the total value of your investment is RM1,080.

On May 31st, the fund managers review the income of unit trust. This total income is divided by the units. Let say it results in a distribution of RM0.01 per unit. Therefore, each unitholder will receive a portion of this income in proportion to the number of units he/she owns. So, you receive a distribution payment of RM40 (RM0.01 per unit multiplied by 4000 units owned).

A new unit price will now be calculated. To do so, take the unit price for the fund before the distribution and subtract the per unit distribution. In this case, RM0.27 – RM0.01 = RM0.26. Thus, the new unit price is RM0.26 per unit.

Next, we can calculate the number of units that distribution amount of RM40 would purchase at the new unit price, i.e., RM40 divided by RM0.26 per unit = 153.846 units. You can opt either to reinvest the units or redeem it for cash.

  Before distribution After distribution
Number of units 4000 units 4153.846 units
Unit price RM0.27 RM0.26
Value of investment RM1,080 RM1,080

If you choose to reinvest the distribution, your value of investment will still be the same RM1,080, but you will now have additional units of 153.846. However, if you choose to redeem it, you will receive a cheque or bank-in RM40. Your account will still have 4000 units, but at the new unit price of RM0.26, and your investment would now be valued at RM1040.

In the common practice, most investors will reinvest their distribution to take advantage of the power of compounding so that they have more units working for them to achieve their investment goals. Look at the another angle of view, re-investment option will accumulates more units and get average price which is cheaper than your initial buying price.

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