Distribution units vs Accumulation units?

MrMartyn

I've got an ISA that I use to invest in the L&G UK INDEX TRUST. My aim is for my money to track the FTSE All-Share index with dividends re-invested.

On the back of some documentation I received from L&G following a recent lump sum investment, it states...

"Distribution Units

Units where any available income is paid out directly to the investor on the appropriate distribution dates. If income is to be reinvested then the distribution payment will be used to buy further units in the same trust.

Accumulation Units

Units where any available income will be rolled up within the unit price."

I arranged my investment over the phone and told the L&G person that I wanted my dividends to be reinvested. Based on what they said, I ended up chosing Accumulation Units, which I understand are effectively the same as having dividend income reinvested.

Can anyone explain the pros & cons of Distribution vs Accumulation, bearing in mind that my aim is to track the FTSE All-Share with dividend income reinvested? I don't understand how the Accumulation Units thing works. I'm beginning to wonder whether I should have opted for Distribution Units but with dividend income reinvested. The only thing is, if I remember right, the annual management charge for Distribution Units was 0.5 percent whereas for Accumulation it was 0.4 percent.

Thanks,
MrMartyn

Disclaimer: I am not an expert. My comments are my opinions only and should not be taken as advice. If you act on anything I post here you do so entirely at your own risk. I do not accept any liability for anything I post here.

Lokolo

With Acc the dividends that would be paid out to you just go back into the pot and raise the price of the units.

If you reinvest the dividends you just end up with more units at the lower price.

Just look at the 2 funds and compare them. You will see that the Acc will have a higher unit price than the Inc because the dividends don't get paid out, they just go back and raise the price of the units.

MrMartyn

I invested some more money into my FTSE All-Share index-tracking ISA this morning. I was going to chose Distribution Units with income reinvested, but was told that they no longer offer this option. The choice was either Distribution Units with income paid out, or Accumulation Units with income reinvested, so I chose Accumulation Units with income reinvested.

Thanks,
MrMartyn

Disclaimer: I am not an expert. My comments are my opinions only and should not be taken as advice. If you act on anything I post here you do so entirely at your own risk. I do not accept any liability for anything I post here.

Totton

If you are re-investing in the same fund then accumulation units is the way to go. However I have opted for distribution units as I prefer to re-invest the div but not necessarily in the same fund, secondly I like to see the dividend as it gives me a morale boost when the markets are not doing so good - I think my wife gets fed up of my calling 'I've got another dividend whoeee!'

Main point - acc units work out essentially as the same performance of a div paying unit.

HTH,
Mickey