Distributing fund

A distributing fund collects the income from its holdings, deducts its costs and pays the rest to investors on set dates. When a distribution is paid, the fund’s price falls by roughly the amount paid out, because that cash has left the fund. You can spend the money or reinvest it yourself. In the UK such share classes are often labelled ‘Inc’ for income, and elsewhere ‘Dist’. The fund’s total return is the same as that of an otherwise identical accumulating class; only the form in which you receive it differs.

Distributing funds suit investors who want a regular cash flow, such as retirees drawing an income, and they make the tax picture simpler in countries that tax income when it is paid. The drawbacks are that reinvesting takes effort and may incur dealing costs, and that cash left uninvested earns little. A common mistake is to treat a high distribution as extra return: money paid out is money no longer invested, and a fund can sustain a high payout by holding riskier assets or, in some structures, by paying out capital.