Why is the practice of selling dividends prohibited?

The practice of selling dividends is prohibited primarily because the amount of the dividend is already factored into the price the customer pays for the fund. This means that if an investor buys shares in a fund right before a dividend is issued, they may believe they are gaining value from that dividend. However, the share price typically drops by the amount of the dividend on the ex-dividend date, effectively neutralizing the benefit of the dividend payout. Hence, any marketing strategy that promotes dividend payments as a distinct selling point can mislead investors into thinking they are gaining more than they actually are.

By understanding this concept, investors can appreciate that their returns come from the overall performance of the fund rather than focusing solely on dividend distributions. This prohibition is in place to ensure transparency and fairness in how funds are marketed and sold, helping to prevent any potential manipulation of prices based on dividend payouts.