Dividends are declared daily and paid monthly. Unless you specifically request otherwise, your dividends and distributions will be reinvested automatically for you in full and fractional shares of the Fund at the then current Net Asset Value per share, without any sales charge and will compound tax-free. You can, of course, if you wish, have any or all of the dividends or distributions paid to you by check each month, or electronically transferred to your personal bank account. Alternatively, you may direct all of your distributions to another one of your existing accounts in the Aquila Group of Funds.
The net asset value (NAV) is the value of the fund's underlying securities. It is calculated at the end of the trading day. Any open-end fund, buy or sell order received on that day is traded based on the net asset value calculated at the end of the day. A few funds calculate net asset value at more frequent intervals and process trades at those values.
A mutual fund may receive dividend or interest income from the securities it owns; it is required to pay out this income to its investors. Most open-end funds offer an option to purchase additional shares with the distributions. Dividend distributions are often made monthly or quarterly, though many funds make distributions only yearly.
A mutual fund may, in the process of trading, realize capital gains. These must be distributed to investors. As with dividends, there is usually the option to reinvest in additional fund shares. Capital gain distributions generally occur late in the year, but some funds make additional distributions at other times. Funds with high turnover of securities often make significant capital gain distributions every year, while funds with low turnover of securities may accumulate unrealized gains for several years before making a large capital gain distribution. Also, funds that are increasing in size tend to make smaller capital gain distributions because they buy more than they sell, while funds decreasing in size tend to make larger capital gain distributions because they sell more than they buy.
A distribution lowers the net asset value of the fund by the amount of the distribution. The shareholder does not actually lose money because of the distribution, since s/he gets cash or additional shares to compensate for the lower net asset value.
Do not confuse the two terms.
Return is sometimes called total return. The formula for total return (ignoring any taxes paid on gains and income during the holding period) is:
TR= ((Ending Market Value)/ (Beginning Market Value))-1
Yield is a very different number -- it is prospective not retrospective. It is a measure of income not capital gains. It is usually associated with debt not equity. For instance, the yield quoted on a bond will almost never be the same as the total return realized after the bond matures or is sold.
There are funds that invest in almost anything an investor could want to invest in. The most common types are described below.
A. Money market funds
These try to maintain a constant NAV per share (though they cannot guarantee that), while yielding dividends from their investments in short term debt securities. They offer very low risk, but usually low long term return. Most restrict investments to the top two (out of four) Moody's and Standard and Poor ratings for short term debt; some (including national government only funds) restrict themselves to only the top rating, providing a bit of extra credit safety, usually at a slightly lower yield. Most also invest in repurchase agreements (repos) collateralized by short term debt securities; these are subject to credit or fraud risk of the other party in the repo (regardless of the credit risk of the securities being repoed). Their market value is NOT insured by the FDIC or other government agency. Enough defaults in the fund's securities can cause it to be unable to maintain its constant NAV.
(a) Regular funds:
Invest in short term debt of all types.
(b) Government funds:
Invest only in national government or government agency debt or repo involving such debt. Slightly lower credit risk than regular funds.
(c) Treasury funds:
Invest only in direct obligations of the national government or reports involving these securities. Lowest credit risk and dividend distributions are exempt from state income taxes in most states. (d) Municipal funds:Invest only in debt of state or local governments. For most individuals, dividend distributions are exempt from national income taxes.
(e) Single state municipal funds
:Invest only in debt of one state or its political subdivisions. For most individuals, dividend distributions are exempt from national income taxes and that state's income taxes. Note that a single state fund is usually less diversified than a regular municipal fund and might be considered riskier for this reason.
B. Bond funds:
These invest in longer term debt securities. Thus the short term risk is greater than the infinitesimal risk of the money market. But returns are usually higher. Their NAVs may fluctuate due to both interest rate risk and defaults. Unlike individual bonds, most bond funds do not mature; they trade to maintain their stated future maturity. The types of debt are similar to those of money funds (but longer term); however, futures and options are sometimes used for hedging purposes. The other classifications are described below:Time to maturity, interest rate risk:
(a) Short term: Usually less than 5 years maturity. Interest rate risk is low.
(b) Long term: up to 30 year average maturity. Interest rate risk is high.
(c) Mortgage backed securities:
Have some unusual interest rate risks. When interest rates rise, they lose value like other bonds. When interest rates fall, homebuyers refinance, causing them to prepay old mortgages, which in turn causes bonds backed by these mortgages to be called. In addition, when rates rise, the MBSs extend due to slower prepayments --- thus their duration goes up with interest rates and the bonds lose money at an accelerating rate. When rates fall the pre payments speed up and the bond gains money at an ever slower rate. This property is called Negative Convexity. It is also a gross over-simplification. There are MBSs with positive convexity. A 14 year old 13% MBS's prepayments are functionally independent of rate moves for example; also prepayment risk is shuffled all over the place in CMOs.
The compensation paid to MBS holders for the negative convexity is in higher yield. Basically the buyer of a mainstream MBS is betting that rates will not change too much (that interest rate volatility will be lower than the volatility implicit in the price). Over time this is true. MBS indices have outperformed Treasuries in all but a couple of the last 12 years.
(d) Adjustable rate:
This type of fund is like other mortgage backed funds, but it invests in adjustable rate mortgages. Therefore, the two sided interest rate risk faced by fixed rate mortgage backed bonds in considerably reduced. However, the interest income will fluctuate widely, even though the principal value is more stable. Since most adjustable rate mortgages have caps on how high the rate can go (typical limits are a 2% increase during a year and 6% increase during the life of the loan), risk increases if interest rates increase quickly or by a large amount.
(e) Target maturity:
The few funds in this category buy only bonds of the given maturity date. Thus one can actually hold these to maturity.
C. Credit risk:
(a) Investment grade:
Restricted only to bonds with low to medium-low credit risk (national government bonds are usually considered lowest risk). This generally means the fourth highest Standard and Poor's or Moody's rating (S&P BBB or Moody's Baa). Some funds have higher standards.
(b) High yield or junk:
Buys bonds of any credit rating, seeking maximum interest yield at a greater risk of default.
D. Stock funds:
These invest in common and/or preferred stocks. Stocks usually have higher short term risk than bonds, but have historically produced the best long term returns. Stock funds often hold small amounts of money market investments to meet redemptions; some hold larger amounts of money market investments when they cannot find any stock worth investing in or if they believe the market is about to head downward.
Some of the possible investment goals are described below. They are not necessarily mutually exclusive.
These funds seek maximum growth of earnings and share price, with little regard for dividends. Usually tend to be volatile.
(b) Aggressive growth:
Similar to growth funds, but even more aggressive; tend to be the most volatile.
(c) Equity income:
These funds are more conservative and seek maximum dividends.
(d) Growth and income:
In between growth funds and income funds, they seek both growth and a reasonable amount of income.
(e) Small company: It focuses on smaller companies. Usually of the growth or aggressive growth varies. Since smaller companies usually don't pay much dividends.
(f) International: It focuses on stocks outside the USA, generally investing in many nations' companies.
(g) Country or regional funds: These funds buy stocks primarily in the designated country or region.
(h) Index funds:
These funds do no management, but just buy some index, like the Standard and Poor 500. Some index funds, particularly those emulating indices with large numbers of stocks such as the Wilshire 4500 or Russell 2000, emulate the index by buying a subset with similar industry mix, capitalization, price/earnings ratio, etc. Expenses are usually very low.
(i) Sector funds : These funds buy stocks only in one industry.
E. Balanced funds:
By mixing stocks and bonds (and sometimes other types of assets) a balanced fund is likely to give a return between the return of stocks and bonds, usually at a lower risk than investing in either alone, since different types of assets rise and fall at different times. An investor can create his/her own balanced fund by buying shares of his/her favorite stock fund(s) and his/her favorite bond fund(s) (and other funds, if desired) in the desired allocation.
(a) Regular balanced funds:
These funds usually hold a fixed or rarely changed allocation between stocks and bonds.
(b) Asset allocation funds:
These funds may switch to any allocation, usually based on market timing to some degree.
F. E. Multi funds:
These funds buy primarily other mutual funds. They choose other funds based on one or more of the investment goals outlined above.
(a) No-management funds:
These funds hold fixed proportions of other funds. They are offered by fund companies as cheap balanced funds -- the underlying funds are other funds managed by the same company. There are generally little or no expenses other than those of the underlying funds.
(b) Managed funds:
In these funds, a manager picks which other funds she/he believes are managed well. Sometimes these funds are market timing funds which prefer to leave the stock picking to other managers. These funds have expenses above and beyond those of the underlying funds.
In addition to the usual investment goals, these funds restrict their investments to whatever they define as socially responsible. Such criteria can include: avoiding military, alcohol, tobacco, and gambling industries, preferring companies. That treats employees and the environment well. Different funds have different social and investment criteria.
A load fund usually costs the same whether bought directly or through a broker. A no-load fund can be bought directly at no charge; most brokers will charge a commission to buy a no-load fund. Some discount brokers now offer some no-load funds at no transaction fees; normally, they receive a portion of the funds' annual expenses instead. Holding funds in a broker may make it easier to trade from one fund to another, however. Closed-end funds usually need to be traded through a broker, like regular stocks, though some have dividend reinvestment plans.
Like shares of any stock, selling mutual fund shares may cause you to realize a capital gain or loss. Mutual funds also distribute dividends received and their own realized capital gains, usually at the end of the year; these distributions, whether taken in cash or reinvested, are taxable (note that the non taxability of municipal bond funds applies only to dividend distributions; capital gain distributions are always taxable).
Thus it is often a bad idea to buy a mutual fund just before the distribution date, since part of your investment will be immediately returned to you as a taxable distribution, resulting in you paying taxes much earlier than if you bought just after the distribution. Although the distribution lowers the net asset value of your shares, allowing you to "deduct" it when you sell the shares, paying taxes sooner rather than later prevents you from gaining investment income on the amount that is taxed. Note that reinvesting is considered identical to taking the distribution in cash and sending the same amount into the fund as a new investment, so don't forget about it when calculating the basis in your account. When selling, it is best to know the different methods of calculating the basis of shares sold ahead of time, since some methods require that you designate which shares are to be sold. For more information, call 1-800-TAX-FORM and ask for publications 544, 550, and 564, and schedules B and D, but note that tax rules can change since the last tax year.
There are several important distribution related dates to be aware of when buying and selling mutual fund shares.
The way in which your mutual fund account is registered is an important factor in estate planning. The disposition of property or assets after the death of an individual is often governed by the way that property or account is titled. Listed below are descriptions for three common forms of mutual fund account registration.
Individual registration is the simplest form of ownership because one person has absolute control of the property. Owner must plan for transfer of the account when he/she dies; commonly done with a will. Otherwise state rules of succession and state inheritance laws dictate disposition of account upon death.
Joint Tenant is most common form of ownership involving 2 or more individuals. Each person owns an individual interest in the entire account. Consequently, income generated from the account is owned equally by all of the parties involved in the joint tenancy. Right of survivorship dictates that upon the death of a joint tenant, the account immediately and automatically passes to the surviving owner(s). Joint tenants do not have to be related individuals.
Tenants In Common differs from joint tenancy in several ways. Tenants in common each own a specific portion of the account. If no specific allocation is made (e.g. two-thirds/one-third or one-half/one-half), the account is said to be equally divided among all of the tenants. Income earned on the account is divided based upon the specific allocation of ownership. As in joint tenancy, tenants in common do not have to be related individuals.
There are no survivorship rights for assets held in tenancy in common. Upon the death of one of the tenants, the assets will pass to whomever the decedent names in a will.
Following is a list of some Internet resources available which relate to mutual fund investing. If you are aware of resources which are not listed, feel free to E-mail a description of them to the FAQ Compiler identified at the beginning of this file.
The directors of India Equities Fund Ltd have resolved to pay an unframed interim dividend of 1 cent per share to shareholders. The record date for payment of the dividend to shareholders is 2 October 2007. Payment of the interim dividend will be made on 15 October 2007.
No. Participation in the Dividend Reinvestment Plan is optional and open to all shareholders of India Equities Fund Ltd unless expressly excluded from certain terms and condition. You will need to elect or apply to be part of this plan.
The Dividend Reinvestment Plan will apply to dividends payable after the exercise date of the Stapled Option on 12 September 2008.
No, you need not do it again
The company was listed in April 2007 and will not have settled its tax liabilities by the time of distribution. Therefore, the company will not have generated any franking credits to be used on the dividends.
Yes, to the extent that franking credits are available.
Yes. There are two parts to the stapled securities you currently hold.
a. An underlying India Equities Fund Ltd share; and
b. An option to buy another India Equities Fund Ltd share for $1.00 on 12 September 2008.
It is an option that is stapled to the underlying India Equities Fund Ltd share. The option remains stapled to the share to a date, which in this case is 12 September 2008, specified by the company in the prospectus. The option cannot be sold separately at any stage.
The S at the end of the INES code at the ASX website indicates a stapled option attached to the share.
No. The option remains stapled to your India Equities Fund Ltd share until 25 August, 2008. On this date, the underlying India Equities Fund Ltd share and the Option will separate, which means only the share portion will be traded on the market place without the Option portion.
No. Up until end of day 25 August 2008, the India Equities Fund Ltd share you trade in the market is automatically traded with the option “stapled” or attached to the share. After this date, you will only be trading the share portion and not the option. The option portion stays with you until the exercise date, by which time you can choose to exercise the option or else let the option lapse.
You can exercise your option on the day of 12 September 2008. Exercise before this date by sending your exercise notice, and payment will only take effect on the 12 September 2008. The official record date of all the options in the market is 1 September 2008. However, the only day to exercise this option is 12 September 2008. If the option is not exercised on this date, it will expire.
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