Private investors remain interested in investing in mutual funds with the payment of intermediate income

Private investors remain highly interested in investing in mutual funds with intermediate income payments. In the first half of the year, the net inflow of funds into such mutual funds exceeded 44 billion rubles. Bond funds of this type bring shareholders a more predictable return than stock funds with less regular dividend payments. However, it should be borne in mind that such investments lose to classical funds in terms of profitability.

Retail interest

In the second quarter, the total number of individual shareholders exceeded the milestone of 9 million people, the Central Bank indicates in the “Overview of Key Indicators of Mutual Investment Funds” (.pdf). During the quarter, the figure increased by almost 500 thousand people. The main growth came from retail funds (open-ended and exchange-traded mutual funds), and the number of interval fund shareholders also increased. At the same time, the number of shareholders of closed mutual funds decreased for the first time in nine quarters.

Active growth in the number of shareholders of retail funds had a positive impact on the results of attraction. According to the Central Bank, during the reporting period, the net inflow of funds to such funds exceeded 21 billion rubles, which is more than five times higher than the result of the previous quarter. This is the best quarterly result since the fourth quarter of 2021, which was the best in the history of the industry. A year and a half ago, net inflows into funds exceeded 85 billion rubles.

Regular payment

In its report, the Central Bank notes that the inflow of funds in the past quarter was ensured, among other things, by expanding the range of open mutual funds with income payments. According to Kommersant’s estimate based on data from the Bank of Russia, in the first half of 2023, 11 retail funds were formed (five BPIFs and six open-ended mutual funds). Every second open-ended investment fund launched had the option of paying intermediate income. According to the results of the first half of the year, private investors invested more than 44 billion rubles in such funds.

The ability to pay intermediate income appeared in retail funds only last year, previously it was available only in closed-end and interval funds.

To date, ten open-end mutual funds with regular payments under the management of six management companies (Alfa Capital, Otkritie, Pervaya, PSB Management Company, RB Capital, MKB-Investments) operate on the Russian market. Six are mixed funds, two are bond funds, and two are equity funds.

Diverse Income

Depending on the type of fund, the income intended to be paid to shareholders may be formed from dividends received on shares and coupons on bonds. For all funds, payments are made quarterly, and their size depends on the volume of coupons and dividends received during the reporting period. These payments usually go directly to a bank account, which makes this product similar to a classic deposit, but unlike it, the return of the main part of the funds is not guaranteed.

“It makes sense to acquire such funds precisely as rentiers — those who live on incoming cash flows,” says Ivan Lavrinenko, investment director at RB Capital.

At the same time, it should be borne in mind that income is easier to predict in the case of bond funds, while in stock funds, the amount of dividends is not fixed and may vary depending on economic or market conditions. In addition, stock quotes are more volatile and therefore can bring both a larger increase in the value of a share and a large drawdown. But the further the investment horizon, the higher the share of shares should be in the portfolio, says Viktor Bark, director of the asset management department of Alfa Capital Management Company, and vice versa.

Since the beginning of the year, bond funds have shown the best results, with a quarterly dividend of 2-3%. The spread of paid income for equity and mixed funds ranged from 0.4% to 2% per quarter. Taking into account such payments, the effectiveness of the strategy as regular payments for life makes sense when investing in funds from several million rubles, market participants note.

“If the amount is up to 1 million rubles, then it is better to invest it in classic funds in order to maximize profits by reinvesting dividends and coupons, and then, as capital accumulates, shift to funds with payouts,” notes the head of the sales department of Pervaya Management Company Andrey Makarov.

Tax Features

With such investments, it should be taken into account that during the periods of payments, the value of the units is reduced by the amount of the payment. Due to the fact that during the period before the payment of the intermediate income, all coupons and dividends are taken into account in the value of the share, it is better to enter at the very beginning of it. “If you invest one day before the income payment, the client will actually receive part of his money back in the form of a dividend, but at the same time he will have to pay tax, since this is already considered income,” Mr. Makarov notes.

In general, such investments will be inferior in terms of profitability to classical funds, which regularly reinvest incoming bond coupons and stock dividends. In addition, they lose because of different principles of taxation. The fund is not a payer of income tax or personal income tax, therefore, when it receives payments from issuers, they are not subject to any taxes. But any payment of intermediate investment income will already come minus personal income tax, and therefore shareholders will receive payments after tax withholding.

Vitaly Gaidaev