The World of Investments and Money

Thursday, December 28, 2006

Mutual funds - what if they don't pay you dividend ?

I've mentioned in the earlier posts how Mutual Funds (MFs) pay dividend, and why it doesn't matter as far as your net wealth before and after getting dividend is concerned. In short, dividend is just your money that was in MF which is returned to you. The price of the MF unit comes down after the MF pays dividend. So, overall net wealth is same for you. It is just that the part of the money you had invested in MF is now in your bank. This could lie there if you are not careful. Which is not a great idea. For this reason, unless you need cash, dividend isn't a good option.

So MFs pay dividend which is good if you need money. What if you need money and your MF is not paying you any dividend? In that case you can sell some of your MF units. This is like paying yourself a dividend. The effect will be same as if the MF has paid you dividend! This is called Capital Gain. Funny how the terminology changes for same thing. It is your money in MF that you have invested. If MF gives some back to you, it is dividend. If you withdraw it is capital gain.

PS: I'm trying out a few online money making ideas I found on net and have given the links to the right side of this blog. I will evaluate them time to time and remove links I found aren't worth wasting time, or will add links that I find interesting. Two days ago I found myLot which pays for each message you post in the Forum. So far it seems to be working. Paying rate per message is low though. For about 50 messages sent they pay you $1. It is fun to try, but don't expect to earn a lot of money!

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