What do we understand when we talk about “Self Funding” in Dividend Capture Strategy in Regular Investment Plan?
A regular investment plan requires investor to fund the investment on a regular basis. The frequency of funding varies from monthly, quarterly, half yearly to yearly. There is typically a prefixed number of years of premium payment which an investor need to commit to, else penalties may apply.
Self Funding is therefore defined as using a smaller amount of fund than specified in the plan to generate income to fund the investment itself, increasing investment account value and increasing income perpetually. Turning the investment into a “Automated Money Making Machine”, “Automated Money Printer” or some call it “Perpetual Profit Centre”.
Example: A 10-Year Regular Investment-linked Plan requires an investor to minimally fund 10 years of premium of the plan. However, using Scheduled Dividend Capture Strategy (SDCS), investor only need to fund it for the first 3 years, thereafter the plan will generate sufficient passive income (dividend) to fund it perpetually. Thus, progressively increases its dividend (passive income) and its cash value (investment account value) over time.
Theoretically, so long as your investment can generate a yearly income of 20%, in 3 years time, you will be able to self fund the regular plan perpetually. Assuming that the the account value stays stagnant. See below.
Table 1: 3-years Self Funding based on 20% yearly income.
The above table is based on the assumption that the account value stays stagnant. However, in real life, fund prices fluctuates everyday so long as the market is opened, thus the account values do not stay stagnant, especially when we are deploying Scheduled Dividend Capture Strategy (SDCS-S2 or SDCS-S3). They typically trend down in each intra-year but trend up over medium to long term, year on year. See below.
Do note that all the table or the charts below are based on a annual premium $100,000 investment linked plan.
Chart 1: Cash Value Line Chart
Based on the Bar Chart of the cash value, it’s increasing Year-On-Year,
Chart 2: Yearly Cash Value Bar Chart
With an increasing cash value, we expect an increasing dividend of the investment, since dividend is issued at % of the Cash Value or the NAV. Let take a look if it is still possible possible to Self Fund in 3 years when the investment cash value fluctuates. Let take a look at the dividend and see if it’s still able to achieve 20% payout.
Chart 3: Actual Dividend Payout Vs 20% Dividend Payout Projection
Since the red line (Actual Accumulated Dividend) is always above the green line (20% Dividend Payout Projection), this shows that the investment actual dividend payout rate is above is always above 20% since 2019. The dividend has always been increasing year on year just like the Cash Value. Look at the Bar Chart below, The dividend has been increasing year on year. Do note that the Bar for Year 2024 is not a complete year yet.
Chart 4: Yearly Dividend Bar Chart
Table 2: Actual Dividend Collected to Self Fund with an initial amount of $300,000
(A) is my bank savings account which I deposited the initial $300,000; (B) is the dedicated bank savings account set up for collecting the dividend from my DCS Investment; (C) is the premium I paid to the financial institution I invest with.
The dividend is updated as of 16 Sep 2024. There’s another 3 months of dividend to 16 Dec 2024 not factored in yet. From just the current amount of dividend collected of $114,717.67, we can see that Self-Funding of my investment is already achieved.
With the above Bar Charts, Line Graph and tables, we can conclude that Self fund is possible even when there’s a typical intra-year down trend and a medium to long term up trend of cash value , based on the first 5 years data collected.
Disclaimer:
Do note the above is for educational and sharing purposes only. They are not meant to be investment advice. For any investment or financial planning advice, please approach your financial planner or investment specialist.