Funds

Equity income fund tests ease on dividend payment fall

Tests to ensure that UK Equity Income Funds and Global Equity Income Funds remain true to their definition have been suspended by The Investment Association (IA).

As the core of these types of Income Funds is reliant on companies paying dividends – the current climate of dividend payments being suspended or withdrawn means that these funds will likely struggle to meet pre-pandemic guidelines.

The relaxing of guidelines will enable managers to continue to focus on long-term goals rather than make short-term changes in order to meet original requirements. In an announcement, the IA revealed:

  • The enforcement of the annual 90% yield threshold test will be suspended (12 months) for funds with a year end after the end of February 2020.
  • The enforcement of the three year test is to be suspended

Highlighting the two-fold benefit of these moves to investors and fund managers, the IA noted:

“The IA’s sectors play a valuable role in helping savers navigate the fund market and make meaningful like-for-like comparisons. The measures we’ve introduced today will continue to provide savers with transparency on fund performance, while helping prevent short-term disruption to the equity income sectors, which are particularly affected by the economic consequences of COVID-19.”

Jonathan Lipkin, Director of Policy, Strategy and Research at the Investment Association

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