A distribution fund, also known as a dividend fund, is one in which the management company regularly divides the dividends or interest generated among the fund’s participants. This means that the fund distributes profits to investors, as opposed to a accumulation fund, which reinvests them. This allows for cash flow without having to wait for the investment to mature.
This type of fund is an interesting alternative to bank deposits, as they offer little return. For example, in the case of a distribution fund, if we invest $10,000 in stocks and they generate a return, we will receive certain dividends each year.
The operation of a distribution fund is similar to other types of investment funds, but with the exception of the distribution. The management company establishes in the contract that dividends or coupons will be distributed at certain intervals, usually months, quarters, or years. This way, the investor does not have to wait and can receive certain amounts of money during the term of the contract, providing them with liquidity and allowing them to manage their periodic income more effectively.
There are many different types of distribution funds on the market, which are marketed by various financial institutions. Nonetheless, they can be classified into the following categories:
Investment in fixed income, such as the HSBC Global Investment Funds – Brazil Bond AD of a flexible global type. This fund allows investment in various types of bonds from different countries, and may include emerging countries where the risk is higher.
Those that invest in equities, such as the BlackRock Global Funds – World Energy Fund D4. The risk is higher than in fixed income, but so is the return. In this case, they focus on the energy sector.
Those that distribute high dividends, such as the Payden Global Equity Income Fund GBP (Distributing). The focus here is on companies that have a shareholder-oriented policy and for the periodical income of dividends to be high.
The ideal investor profile for a distribution fund is someone who wants to generate a return on their money without giving up periodic income. They are typically conservative investors and are looking for a product that allows them to plan their savings through those incomes.
For example, a pensioner would benefit from this type of investment. They will have their pension and, in addition, the periodic income from the distribution fund, which will allow them to have a better quality of life.
