How do Unit Prices and Returns work?
Understanding how unit prices and returns work is an important part of understanding your investment. For investors in a managed fund, returns are generally made up of two components being distributions received from the fund and changes in the price of your units.
Return = Distributions + Unit Price Changes
What is a unit price?
A simple way to think about a fund is as one pool of investments. For a property fund, that pool represents the properties and other assets held by the fund.
The fund is divided into units, with each unit representing a portion of the overall fund. The unit price reflects the value of one unit and is calculated based on the value of the fund’s investments and the number of units on issue. As the value of the fund changes, the unit price can also move.
What can affect the unit price?
Distributions
When a fund pays income out to investors as a distribution, money leaves the fund. Because there is slightly less value remaining in the fund afterwards, the unit price may reduce accordingly. This does not automatically mean the investment has lost value , part of the return has been paid to the investor as a distribution.
Changes in the value of the fund’s investments
If the value of the investments held by the fund increases, the unit price can increase. If their value falls, the unit price can also fall. For a property fund, this reflects movements in the value of the properties and other investments held by the fund.
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What is capital growth?
Capital growth is the increase in the value of an investment over time. For a property fund, this may occur when the value of the properties held by the fund increases, which can be reflected in the unit price.
Distributions and unit price
It's important to note that distributions don't directly translate to capital growth. They are a way for the fund to share its income with you. However, some funds might pay out capital gains (profits from selling investments) as part of the distribution. This can lead to a slight decrease in the unit price but still reflect overall growth if the capital gains distributed came from selling investments that increased in value.
Understanding return periods
The period over which a return is presented is important. Returns for periods of less than one year are generally shown for that period, while returns over longer periods are often annualised, meaning they are shown as an average return per year
To track your specific fund's performance, you can find its unit price history and distribution details on the fund manager's website or through your investment platform. This will give you a picture of how the unit price is tracking and how it relates to both distributions and capital growth.
Finding your fund information
Please note
This article has been prepared by Selfund for general information and education purposes only.
It has been prepared without taking into account your individual objectives, financial situation or needs. Before making any investment decision, you should consider whether the information is appropriate for your circumstances and seek independent professional advice where appropriate.