Difference between ACC and INC

thewizz2009

Hi

I have been looking at investing in some funds, but i wanted to know the distinction between accumulation and income. As i understand it income, can either be paid to you or reinvested, and accumulation increases the share price.

How in pratical terms does this work, and which one would provide the best growth in normal circumstances

thanks

dunstonh

The will both provide virtually identical growth if the income is reinvested. Accumulation units reflect the income in the unit price.

Taxation could be a reason to use one over the other but that has to do with the tax wrapper you use which may only offer accumulation units compared to another tax wrapper which has income only units or both.

Chrismaths

Dh, there's no difference in taxation I can think of - what are you refering to?

dunstonh

Sorry, worded it badly. The tax reference is meant for the tax wrapper where you may find the accumulation units are available and you have no personal taxation compared to a different tax wrapper where you may end up with personal taxation.

ReportInvestor

So, as Chris says, no difference.

dunstonh

Simple answer yes but the outcome on personal taxation will depend on the tax wrapper used.

Pick Invesco Perpetual Income Acc units in a unit trust and the personal taxation will be different to same fund used in an investment bond or ISA.

Mr_Mumble

Not wanting to contradict the IFAs here but afaik accumulation units are slightly more tax efficient for CGT purposes. Taper relief applies on the complete holding from the date of acquisition with accumulation units. With income units the reinvestment of dividends to buy more units doesn't have the same taper relief benefit. Taper relief on the income/dividend is treated separately from the initial sum.

dunstonh

Taking invesco perpetual income fund in unit trust form with income reinvested,

cumulative performace if invested in October of
2000 acc= 125.85% Inc= 126.16%
2001 acc=127.05% Inc=127.31%
2002 acc= 120.69% inc= 120.77%
2003 acc= 98.49% inc = 98.44%
2004 acc= 66.25% inc = 66.21%

You can see it if you invested in 2000, inc units were better. In 2003, acc units were better. Its swings and roundabouts and the differences a insignicant. Hence why I said virtually identical growth.

Chrismaths

But remember, Invesco Income is an OEIC - so reinvestment doesn't go through a bid/offer. If it was a unit trust, it's probable that it would have to go through at least bid/creation. I seem to remember that Jupiter charge a full (6%+!) bid/offer on reinvested "inc" divs.

dunstonh

I am off out shortly but I will do the same with a Jupiter fund later and see how that comes out. Although the i think the system works on a bid to bid basis and that may not give the desired effect.

ReportInvestor

Chrismaths wrote:

I seem to remember that Jupiter charge a full (6%+!) bid/offer on reinvested "inc" divs.

I can confirm this.

Although I have benefited from their income fund in an PEP for well over a decade , this charge still sticks in my throat.