Funds - Accumulator vs. Income?

rathernot

Can I check I've understood this correctly.

Accumulator means any dividends go back directly into the fund i.e. I only make money from the fund if/when I sell units?

Income means I get paid the dividend which I can then take or re-invest?

What I'm not 100% clear on is why I would choose one over the other - I'd be grateful for any explanations.

TIA.

dunstonh

Accumulator means any dividends go back directly into the fund i.e. I only make money from the fund if/when I sell units?

Income means I get paid the dividend which I can then take or re-invest?

Not quite but almost.

Income units can rebuy units in the same fund without needing them to be paid out to you (or leave the ISA if you are using that or any other tax wrapper)

What I'm not 100% clear on is why I would choose one over the other - I'd be grateful for any explanations.

If you want income, you would go for income units. If you want growth, you would go with accumulation. If you want growth now but income later you woud go with income units but income reinvested. Sometimes you only get a choice of income or accumulation with some funds.

rathernot

Thanks for the reply.

The amounts involved is a small initial lump sum of around £1k spread over various funds via Interactive Investor.

Odds are I'll be chipping in with more either monthly or in "as and when" lumps up to a maximum of the £4k I can put in a Mini S&S ISA.

I'm interested in keeping a close eye on my investments, but am not planning on drawing an income from them, it's intended as a long term thing.

If I understand you correctly I would be better off going with Income and re-investing it.

I'll show my ignorance here, but a little clarification on exactly what an "Income Unit" is would be much appreciated, I can get my head around % returns and cash dividends but for some reason the units thing escapes me.

barak

dunstonh wrote: »

If you want growth now but income later you would go with income units but income reinvested

This is an interesting point. Some years ago I switched a PEP holding in Perpetual High Income Fund from income units to accumulation units, as it appeared that I was being charged to reinvest the dividends. Perpetual made no charge for the switch and would not have charged me to switch back.

However, this holding is now in Fidelity Funds Network and I've a nasty suspicion that it might not now be completely cost free to switch back, if at some time I wanted to receive the income.

dunstonh

Fidelity is .25% on fund switches.

EdInvestor

barak wrote: »

This is an interesting point. Some years ago I switched a PEP holding in Perpetual High Income Fund from income units to accumulation units, as it appeared that I was being charged to reinvest the dividends.

And it costs a fortune to do this - the transaction charge would be higher than the divi on a small amount invested.

Most people who hold shares directly allow divis to mount up in their cash account and then reinvest them when a big enough lump sum has accumulated.

Some companies have a divi reinvestment (DRIPS) scheme which enables you to reinvet divis in more shares but again you need to be a direct shareholder.

It's very much cheaper to hold shares directly than use funds, as long as you don't trade much and use a low cost broker.

rathernot

EdInvestor wrote: »

It's very much cheaper to hold shares directly than use funds, as long as you don't trade much and use a low cost broker.

Very possibly, only problem is that I (and I'm sure a great many people) don't have sufficient to invest to be able to get a balanced exposure going down the shares route.

ramborai1987

so could someone explain please in terms of growth in the long term which one of these two options is better:

1) investing in income funds + reinvesting the dividends into the fund

2) investing in accumalated funds

dunstonh

There is no answer to give you. In some periods one will be better than the other. The difference is really too small to worry about.

ramborai1987

thanks i thought there wouldn't be much difference. edinvester on the other thread said 1/3 difference over time but i thought that wouldnt be true if it was then everybody would be doing income.

rathernot

Tbh I'd still appreciate an idiots guide to what "Income Units" actually are.

i.e. I invest in a fund and choose Income Units, and the dividend date is October 1st.

What happens on October 1st? What do I receive?