Dividends and accumulation units.....

nearlyretired2004

As a newcomer to S and S investing (apart from having held a few individual shares for many years.....) I'm trying to get my head round something.

I understand accumulation units, in that income gets reinvested in the fund and therefore the price of the units increases.

If this is the case, what is the significance of an ex-dividend date for accumulation units?

For individual shares, or income units, the significance is obvious in that dividend does not get paid if shares/units are bought during the ex-div period.

But surely for accumulation units, once the dividend is re-invested in the fund, the unit price goes up for EVERYBODY regardless of whether or not you bought them during the ex-div period?

I'm sure my logic is flawed but cant work out where!

AlanP_2

True but if you buy ex-div you are buying at the newer / higher price as the dividend will have been factored in to the unit price.

Pre dividend you can "assume" that the price will increase once the dividend is paid out.

TBH I don't take any notice of it. If that is my chosen fund and I am paying in via a regular Drip Feed it I wouldn't mess that about to try and time the purchase as general market moves are just as likely to negate any benefit.

xylophone

But you would have bought ex-dividend at the ex-dividend price.

http://www.incademy.com/courses/unit-trusts-and-oeics/tax-treatment-of-coupons-from-non-equity-funds/16/1007/10002

Jsscmm

If you are buying funds outside a wrapper (ie isa or SIPP) then you need to work out the dividend and growth split for tax purposes. Much simpler to go for inc funds in that scenario.

Eco_Miser

nearlyretired2004 wrote: »

But surely for accumulation units, once the dividend is re-invested in the fund, the unit price goes up for EVERYBODY regardless of whether or not you bought them during the ex-div period?

Two points:
first, the price doesn't rise for accumulation units, it falls for income units, as the dividend goes out of the company (other things being equal).

Second, you are potentially liable to tax on the dividends, even if they are retained in the company.

So, buy acc units just before ex-div date, and you are liable to tax on the dividend (offset by 10% tax credit). Buy them just after, for a similar price, but no tax.