Many companies often decide to pay out dividends to their shareholders, which is a share of a company’s earnings. Since mutual fund companies invest in many companies, the dividends are combined to determine the fund’s dividend. For retirement plans, these dividends are paid out in the form of shares in the fund. Therefore, while your account balance may not necessarily go up as a result of the fund’s dividends, your number of shares will.
 

How will I know if I am eligible to receive the dividend?

When a fund declares a dividend it will also establish a record date. The record date is the date used to determine who is eligible to receive the dividend. If you have money in the fund as of the record date then you will be eligible for the dividend.

When can I expect to receive the dividend?

Dividends from mutual funds are reinvested in the form of additional shares into the accounts of the retirement plan participant. The additional shares are normally reinvested within two business days of the dividend payable date (sometimes referred to as reinvestment date).

How do I know how much of the dividend I will receive?

The dividends are distributed to individual accounts based on the number of shares in the account as of the record date (sometimes referred to as the ex-dividend date). With all other factors unchanged, on the dividend payable date, the share price will decrease but the total value-share price multiplied by the number of shares held, will not change.

Let`s take a look at an example. Fund X has declared a divided of $.10. The value of a share of the fund on the record date is $5. After looking at your account it is determined that you have $3,000 invested in the fund which translates to 600 shares (3000/5). You will receive 12 additional shares ([.10/5] x 600) of the fund as a result of the dividend. Your account value will not grow as a result of the dividend but the number of shares will. In our example the 600 shares become 612 but the account value remains at $3,000 due to the net asset value dropping to $4.90 per share ($5 - $.10).

How often are dividends declared?

Declarations of dividends for mutual funds vary for each fund each year. Refer to fund prospectuses for more information.