The big trap of dividend mutual funds

Investing in mutual funds There are many options and types of funds to choose from. It depends on the conditions and objectives of the investor. The classification of funds that many investors consider in choosing and are widely talked about are Dividend funds and non-dividend funds (or accumulate value) because they look at the possibility of receiving dividends that the fund will pay out at certain times. But did you know that Dividend funds It is a type of fund that reduces the chance of receiving an overall return (Total Return) so much that it is not worth the benefits from the dividends received.

Get to know dividend funds

Classification of funds according to the nature of cash flow payments along the way can be divided into 2 types:

1. Accumulated value funds which will not pay dividends This type of fund is classified as Class A (Accumulation).

2. Funds with cash flow payments along the way Currently, there are 2 sub-categories:

2.1 Dividend funds: This type of fund is classified as Class D (Dividend).

The dividend fund, as we call it, will be here, which means Fund management company Fund assets must be sold along the way. To use the money received to pay dividends

2.2 A type of fund that gradually returns money, Class R (Redemption), by a fund like this The management company will not call the cash returned as dividends. Individual investors are therefore not subject to withholding tax.

Therefore, funds with the same policy may have either Class A, D or R to answer the needs of some investors who want dividends along the way.

So where do dividends from the fund come from?

When a dividend fund decides whether to pay dividends, the fund owner's asset management company Must sell part of the fund's assets. To bring in money to pay dividends to investors which when the property is sold The result is The net asset value of the fund (Net Asset Value, NAV) will decrease, affecting the return of the fund, which is equivalent to when there is a dividend payment process. It will cut off the growth opportunity of the fund that is currently growing. In order to convert available net assets into dividends.

4 important traps of dividend mutual funds that investors should know

1. Dividends must be subject to withholding tax of 10%.

Holding funds that pay dividends Investors will pay a withholding tax of 10%, meaning that we will receive only 90% of the net dividends from the dividends that the fund pays out. Therefore, in calculating the total return from investment, we must consider 90% of the dividends that the fund declares to pay. However, if you choose not to deduct withholding tax, you must submit it at the end of the year. This may cause investors with a tax base higher than 10% to pay higher tax rates.

2. The growth of dividend funds is inferior to that of value accumulation.

When a dividend fund has to sell assets at certain times. causing an effect on the value of the fund and opportunities to create returns The author tries to use an example of a fund to compare. By selecting both bond funds and equity funds When comparing pairs of funds that have the same policy but different classes, that is, non-dividend type and dividend type, when simulating the situation that Started investing 3 years ago (end of April 2564) as well. (This does not include returns from dividends. which will be discussed in the next section)

Bond funds: KFMTFI (KF Medium Term Fixed Income)
Growth of net fund value over a period of 3 years
Non-dividend fund KFMTFI : +3.73% Dividend fund KFMTFI_D : + 1.07%

(Figure 1 compares the growth of mutual fund value between KFFTFI vs KFMTFI_D)

Equity funds : KWI INDIA (KWI India Equity FIF)
Growth of net fund value over a period of 3 years
Non-dividend fund KWI INDIA_A : + 52.60% Dividend fund KWI INDIA_D : +23.81%

(Figure 2 compares the growth of mutual fund value between KWI INDIA_A vs KWI INDIA_D)

3. Net return on investment When total dividends are calculated, they are still less than non-dividend funds.

When you try to take all the dividends that the fund pays out during the net investment after deducting the withholding tax of 10% and calculate the total return from the investment. If you compare the funds above, you will find that the total return of Dividend funds Still inferior to the non-dividend type, as shown in the calculation example below.

Bond funds: KFMTFI (KF Medium Term Fixed Income)
The difference in net returns that investors lose from dividend funds KFMTFI_D
Compared to non-dividend funds, KFFTFI is at 0.57%.

(Figure 3 compares the net difference of KFMTFI vs KFMTFI-D funds)

Equity funds : KWI INDIA (KWI India Equity FIF)
The difference in net returns that investors lose from dividend funds KWI INDIA_D
Compared to non-dividend funds, KWI INDIA_A is at 9.01%.

(Figure 4 compares the net difference of KWI INDIA_A vs KWI INDIA_D funds)

Table comparing the net total returns of dividend funds and non-dividend funds.

4. Dividends received Even if it is invested further Might not be worth it Compared to continuous investment

If you want to continue investing the money you earn, you must calculate whether the investment will generate a return of more than the 10% that was deducted from the withholding tax. Including if you want to continue investing in other funds. You must not forget that Some types of funds have sales fees (Front-end Fee) which must be taken into account as well.

If you say you want to invest the money back in the same fund, you'd have to say that it's not worth it. Because if you intend to invest fully like that already (After receiving dividends, do not use But intend to bring it back to buy and re-invest) There is no need to invest in complicated dividend-paying funds in the first place. You have to follow and see where. When is dividend paid? You must not forget to send repeat orders every dividend payment period. Why do I need to prepare more documents for tax filing? (In the case of requesting a tax refund) while funds that do not pay dividends Investors will not have this kind of burden. Can keep investing As long as the fund is still a good fund

If the returns are inferior Why do asset management companies still sell dividend funds?

What products will you sell? If there is no demand from buyers It probably won't sell. which the needs of investors in choosing to invest in dividend funds There are still a lot of them. Because many people may compare it to stocks. that it would be better to receive some dividends and thus there will still be cash flow coming in throughout the investment period. But do not forget that the conditions are different. Money that will be used as dividends from that fund Must arise from the sale of assets of the fund. This results in the value of the assets we invest in decreasing. Instead of allowing it to grow fully

If we look at it from the point of view of the asset management company, it will have more burden and costs to manage. Both transactions pay dividends to all investor customers. Including the duty to remit withholding taxes to the government sector. This does not include lost opportunities from management fee income. that will vary according to the size of the fund When the fund pays dividends Fund size has shrunk and income has decreased. Therefore, investors' expectations from dividend funds may not be in line with reality. Therefore, it is an obstacle both to the management of the asset management company and to the growth of investors' returns.

If investing in non-dividend funds So if you want cash flow during investment, what should you do?

The answer is straightforward. That is, when do you want to use cash? Just sell investment units. which can be done during business hours As investors want And there are more advantages. Because the fund pays dividends Investors will not set the dividend payment date themselves. Must wait for the fund to announce the payment. While if we plan to sell ourselves We can order sales at any time. Then wait to receive the money on the specified date according to the conditions of the fund, such as T+1, T+3. In addition, every baht received Even if selling at a profit You also do not have to pay taxes or be subject to withholding taxes.

Having more investment options is great. The more the better. But the investors themselves It is a duty that must be understood. and choose investment products that are suitable for yourself, knowing the advantages and disadvantages of each option In order to receive the best return that suits your own investment objectives.