InvestorQ : How will the dividend received by Index ETF Funds treated? Please inform whether such dividend will be distributed to Unit Holders?
Ashok Kumar made post

How will the dividend received by Index ETF Funds treated? Please inform whether such dividend will be distributed to Unit Holders?

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Priyanka N answered.
2 years ago
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An exchange-traded fund is an investment fund operating on the stock exchange holding assets such as stocks, bond or commodities. An index fund, on the other hand, is a mutual fund or an ETF constructed to follow a specific industry or index.
Now what technically Index ETF fund is? It basically an Exchange Traded Fund constructed to follow a specific index.  Under ETFs investment is made in different stocks altogether, that can also be for short term and any notional profit/loss is realized so as to minimize the risk. Index here means to say, top 50 companies of a particular industry.

Under ETFs whatever dividend comes with the investments in different stock, it is all paid. To pay out these dividends most ETFs pay-out dividend quarterly by holding all of the dividends paid by underlying stocks during the quarter and pay them to the shareholders on pro-rata basis or on the basis of the number of shares held by each shareholder.

Allocation of dividend:
Suppose there are 200 shares of an ETF outstanding, and an investor owns 10 shares of that ETF, he would hold the right to receive 5% of the total dividends earned by the ETF. If ETF is combined of 10 different dividend-paying underlying stocks, the total amount of all those stocks shall be pooled quarterly and all the shareholders shall be paid on the basis of their shareholding.


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