As traditional deposit interest rates officially fell below the psychological threshold of 1%, the trend of “deposit relocation” in pursuit of higher returns has become increasingly evident. In response to this situation, many wealth management companies have launched monthly and quarterly dividend-based wealth management products to meet investors’ growing demand for certain returns under the premise of stability.
According to a report by China Business Journal, there are currently 25 dividend-based wealth management products for sale, under fundraising, and in existence, which is more than the number of dividend-based wealth management products with existence to be issued in 2024. Market analysis suggests that dividend-based wealth management products possess the dual characteristics of preserving principal and enjoying dividends, precisely meeting the core demands of current investors who prioritize stability while also considering returns. They have thus become a growth point in the wealth management market in the era of low interest rates.
Dividend Mechanism Aligns with Stability Mentality
Recently, ABC Wealth Management launched a dividend-based wealth management product themed “Elders’ Enjoyment.” After being established for three months, users can receive monthly cash dividends. In addition to ABC Wealth Management, companies such as Huiyin Wealth Management and Chongqing Rural Commercial Bank Wealth Management also have dividend-based wealth management products available for sale. According to data from China Wealth Management Network, there are currently 17 dividend wealth management products for sale, 1 product under fundraising, and 7 products in existence by 2025
Dividends of financial products refer to the distribution of the investment returns of the products. When the net asset value per unit (share net asset value) of the product is greater than 1, the product manager will distribute the investment returns of the wealth management product to the investors in accordance with the methods, time, and other conditions stipulated in the product manual.
There are two common ways of dividend distribution. One is cash dividend, where the product manager directly converts a portion of the investment income of the product into cash and distributes it to the investors’ accounts. This dividend distribution method enables investors to immediately obtain returns and achieve the goal of “locking in profits.” Another type is dividend reinvestment, where the product manager converts the dividend amount into new product shares based on the net asset value per unit on the dividend day and distributes them to investors for reinvestment. This dividend distribution method can increase the holdings.
Compared with the situation of the past three years, data from China Wealth Management Network shows that among the existing wealth management products, there were 4 dividend wealth management products in 2022, 9 in 2023, and 21 in 2024.
Why Are Dividend-Based Wealth Management Products Increasing?
The rise in dividend-based wealth management products is related to the downward trend of deposit interest rates. Zhang Li, the executive director of the financial business department of Dongfang Jincheng, analyzed that on the one hand, in a low-interest-rate environment, depositors are not satisfied with deposit returns and turn their funds to the higher-yielding wealth management market. Wealth management companies attract depositors’ funds through the higher expected returns of dividend products. On the other hand, the decline in deposit interest rates has led to a simultaneous drop in the yields of fixed-income assets such as bonds and non-standard debts. As a result, the profit margins of traditional wealth management products have been compressed. Wealth management companies have enhanced the attractiveness of returns by designing dividend-based products (such as being linked to non-standard assets or paying dividends monthly), thereby alleviating the pressure of “asset shortage.”
Recently, commercial banks have initiated a new round of deposit interest rate cuts. The listed interest rates for one-year, two-year, three-year, and five-year fixed deposits of major state-owned banks and major joint-stock banks have generally entered the “1 era.” Meanwhile, pure bond products, which are regarded as representatives of stable financial management, have also performed poorly in terms of yield due to the volatility of the bond market. The general decline in the yields of traditional safe assets has made investors’ demand for wealth management products that can offer yield-enhancing solutions particularly urgent.
After experiencing market fluctuations, many investors’ risk preferences have tended to be conservative and stable. This type of dividend-paying stable financial plan is positioned as stable. Its primary goal is to control risks and ensure the relative safety of the principal. Secondly, it pursues potential excess returns through the dividend mechanism. This characteristic of “defending first and then attacking” is highly consistent with the current mentality of a large number of investors who prioritize stability while also considering returns. A person engaged in wealth management business at a certain city commercial bank told the reporter that regular dividends, especially cash dividends, can provide investors with predictable cash flow. This is an important attraction for investors who have the need to regularly replenish their living expenses and hope to have a sense of “cash in,” or those who prefer to see actual income in their accounts.
Yang Haiping, a special researcher of the Beijing Wealth Management Association, told reporters that recently, commercial banks have initiated a new round of deposit interest rate cuts, and at least a certain proportion of investors are looking for alternative deposit products. Dividend-paying wealth management products can, to a certain extent, meet investors’ expectations for investment returns and can be used as an alternative to deposits. At the current juncture, focusing on strengthening the marketing of dividend-paying wealth management products can help retain customers’ funds and customers.
Ping An Wealth Management stated that the wealth management products with dividend mechanisms are mainly based on an understanding of investors’ long-term investment and short-term cash flow needs. This also provides investors with more diversified investment and wealth management options in the era of low interest rates. The value orientation behind dividends actually represents the thinking of long-term value investment. Through regular dividends, investors can regularly share the operating results of listed companies or financial products. For investors who pursue long-term investment returns and have short-term liquidity needs, dividends can provide certain support for their daily pocket money. At the same time, after investors receive the dividend payments, they can also make secondary investments and enjoy the compound interest of having multiple investment opportunities with the same amount of funds.
In the view of Industrial Bank (601166.SH), for wealth management products with a longer operating period, cash dividends can enable investors to enjoy investment returns in advance, obtain cash flow, and avoid waiting for too long. Cash dividends can lock in investment returns in advance and prevent the net value of the product from falling due to market fluctuations in the future. After the dividend distribution, the net asset value per unit of the product has decreased, which makes the “unit price” of the product seem less expensive and more suitable for investors to purchase additional product shares.
Enhancing Market Competitiveness and Customer Stickiness
The issuance of dividend-paying wealth management products at this time can enhance market competitiveness and customer stickiness. Wealth management companies compete for market share through differentiated design of dividend-paying products, helping banks retain customers. Moreover, their regular dividends smooth out income fluctuations, reduce investors’ sensitivity to net value drawdowns, and alleviate the performance pressure on wealth management companies, according to Zhang Li.
Viewing Dividends Rationally
Although dividend-paying financial products are attractive, financial companies and experts also remind investors to view them rationally and choose carefully based on their own situations.
Industrial Bank explained that dividends are essentially the realization of the net value growth of wealth management products and do not represent additional investment returns. Therefore, the net value per unit of the product will decline after dividends are distributed. Moreover, not all financial products support dividends. Whether a specific product distributes dividends, how it distributes dividends, and when it distributes dividends all need to be subject to the agreed terms in the product manual. Meanwhile, it is suggested that investors make their choices based on their own risk tolerance and investment goals.
Zhang Li told the reporter that for investors, through non-standard asset allocation and dividend mechanisms, higher returns than deposits can be provided while maintaining a certain level of liquidity. However, dividends rely on the performance of underlying assets. If the returns of bonds, non-standard creditor’s rights, etc., fluctuate, they may fall short of expectations or even be zero. Although long-term closed-end products offer dividends, the principal needs to be redeemed upon maturity, and short-term capital demand may face pressure.
In addition, Yang Haiping pointed out that the underlying assets of dividend-paying wealth management products include fixed-income assets, equity assets, and may also include dividend-paying insurance products, non-standard debts, etc. Its dividend performance and final rate of return depend on the performance of the underlying assets. Therefore, dividend-paying wealth management products are subject to the risks of dividend uncertainty and income fluctuations. Furthermore, based on the redemption rules and term arrangements of such products, investors may also face liquidity risks.
Wealth management companies can compete for market share and retain customers through differentiated design of dividend-paying products. However, the decline in interest rates has led to a continuous drop in the yields of fixed-income assets, which may put pressure on future performance. Zhang Li analyzed that dividend-paying wealth management products have significant appeal in the current low-interest-rate environment. They not only meet investors’ dual demands for returns and liquidity but also help wealth management companies expand their scale and optimize their structure. However, its development prospects are constrained by the pressure on the returns of underlying assets and the homogeneous competition in the market. In the future, wealth management companies need to stand out in the competition by innovating asset allocation (such as increasing the proportion of equity assets), enhancing the stability of dividends, and strengthening risk warnings. Investors need to rationally assess their own risk tolerance and give priority to choosing products with stable historical
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