Profiting from unit trust

A unit trust fund will make money from two aspects:

1. by earning dividends (from stocks) or interest (from cash/bonds) and  
2. by selling investments (stocks) that have increased in price and bond maturities.

The fund may distribute or pay out its profits to you and its other investors according to the fund’s declared distribution policy. Some funds’ policy is to pay out earnings yearly, some will pay out half-yearly. Some funds specify that it does not intend to pay out the profits but let the gains accumulate in the NAV.

Payouts when done, is usually carried out in two ways:

1. by way of income distributions. When an income distribution is made you will receive money from the fund. However, you could elect for this money distributed to be reinvested for more units. Following an income distribution, the NAV of the fund decreases.
2. by way of unit splits. The investors’ total number of units in the fund increases but the total NAV remains the same.

As a unit trust investor, you have made profits IF your REDEMPTION value i.e. total number of units X NAV is higher than the amount of your Initial Investment.