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When you invest in a fund, such as a FTSE 100 tracker, do you get the benefit of dividends? I understand the FTSE 100 index does not include dividends. Of course, if you held the share basket yourself, you would get the dividends.

I realise this can depend on the T&Cs of particular funds, but is there a general principle? (I would expect that dividends usually are included) Also, how does a fund return dividends to you?

When it comes to leveraged funds, what is the typical situation?

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Index funds typically pass the dividends on to the investor. Each quarter (usually) you'll get the dividends paid by the components of the index the fund holds. That may not exactly match what you'd get if you held all the components of the index individually, because index funds sometimes don't hold exactly every component in the exact right proportions, to reduce trading costs or taxes (at least in the US). Note that when you bought the index fund you may have set it up to reinvest dividends, so you won't see the actual cash, but you're still getting the dividend, it's just being used to immediately buy more shares.

As you say, the exact details depend on the fund, but the above is how the "typical" index fund works.

Leveraged index funds are more complex. You may not get any or only a small dividend from them, because they use derivative instruments like options and futures to get the leverage, which don't pay dividends. However, I have seen funds that leverage the dividend as well, although I don't know how they manage that.

  • Great answer, but one small additional note. ETFs dividends will also not match those of the index directly as they will generally collect dividends over time and distribute them only periodically. Generally, at the end of each quarter. – rhaskett Nov 17 '15 at 18:57
  • @rhaskett Yes, good point. There will be some delay between when the underlying companies pay dividends and a holder of the fund actually gets the cash. For example if a fund pays at the end of March, June, etc., the dividend from a company that pays the first of April, July, etc. won't be paid by the fund for almost 3 months. A holder of the fund will still get it, just delayed. – blm Nov 17 '15 at 19:14
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It appears that ticker GBP pays dividends twice a year and "seeks to provide long term capital growth by matching the return of the FTSE 100 Index". It has a historic yield of 3.78%. (source 1 source 2).

Regarding how you receive the dividends, I am not familiar with how it works in England. In my American Scottrade Account I get dividends every month on two of my funds and once every three months on the other. The money just shows up as cash in my brokerage account.

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