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Taking partial distributions from MF

Discussion in 'Finance & Banking' started by johnnyb, 15th Aug, 2006.

  1. johnnyb

    johnnyb Well-Known Member

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    Hi All,

    I am organising my finances for a potential IP purchase in the near future, and will probably require some extra income to support the costs. At the moment I have some money in the Navra fund (as well as some other MFs) but I re-invest my distributions each quarter. I want to change this so I get a cash distribution, but I don't want the whole lot, ie, I still want some re-invested.

    Does anyone else do this, and is it easy to set up with Navra?

    I also have a margin loan at 50% LVR, and capitalise the interest. If I take the distribution as cash then the LVR would start to increase. For those of you who do take their distributions as cash how do you manage your margin LVR?

    John.
     
  2. kevinb

    kevinb Well-Known Member

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    MENAI
    Hi John

    My daughter takes 50% cash and re-invests 50% - easy to set up, ask Navra

    Rgds

    Kevinb
     
  3. johnnyb

    johnnyb Well-Known Member

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    Thanks for the info Kevinb. I'll get onto Navra.

    So does anyone else have any comment about my second question, ie, managing the margin loan LVR if you take cash distributions?

    John.
     
  4. Alan

    Alan Well-Known Member

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    Hi John.

    If you take your Distributions in Cash, cap. the interest and don't receive enough unit price growth, then your LVR will indeed increase.

    I'm looking at the same 'problem' at the moment.

    I guess the simple solution is to keep an eye on your LVR and when it goes above 50%, use some or your cash distribution to bring it back down again as soon as possible.

    Unfortunately, I'll have to do this soon too.
     
  5. Bob

    Bob Well-Known Member

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    Margin Loan

    Alan,

    Are you going to purchase more shares or lower your margin loan? I suppose purchasing more shares is the best way seeing it enables you to obtain a higher distribution at a now discounted rate but putting money into the margin loan brings down the LVR faster........

    Bob


    Pay now..play later
     
  6. johnnyb

    johnnyb Well-Known Member

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    I'm always looking for ways to minimise effort (I'm a lazy investor), so rather than keeping your eye on things and making extra payments when required I was thinging the following. Say the margin loan is at 8% interest, and you assume the fund returns 16%. If you then took 75% of the distribution as cash, and re-inested the remaining 25% automatically that should go pretty close to maintaining the 50% LVR.

    In this set up it would take a lot longer for your LVR to move far away from 50% (unless the distribution is miles away from 16%), so you would not have to keep your eye on things as much, or intervene as often.

    You will also presumably save a bit of money by automatically reinvesting the 25% as you avoid the buy/sell spread.

    Does that make sense?

    John.