S&S ISA, Funds and Providers

Audaxer

badger09 wrote: »

NO!

I've tried to highlight the appropriate bits from bowlhead99's post

No need to shout, badger09. You sound annoyed and irritated that I asked a simple additional question following bowlhead's post. I did read the post, and understand that the Acc fund would now be valued at £1,069.60. I just wondered if the account would show that £19.60 of that growth was due to what would have been the dividend on the Inc account.

The VLS60 Acc fund shows a yield of 1.51%. If I had for example £100k invested in that fund I thought it would be nice to actually see a £1,510 'dividend' added to my balance, rather than just seeing an increase in the value and not knowing whether it was just normal growth.

If it does not show that's fair enough, but that's all I was asking.

Audaxer

bowlhead99 wrote: »

As Badger says, with "Acc" the £19.60 does not get "added to your holding" in your online account in any visible way. The £19.60 is the simply the residue of £30 of income earned from portfolio companies *inside the fund* less £10.40 of fund management fee and other fund running costs deducted *inside the fund*. None of that is happening visibly in your online account with the investment ISA platform.

What you see on your ISA investment platform is simply that the 1000 shares in the fund that you bought for £1 each are now worth £1.06960 each or £1069.60 in total. Your fund value has gone up in value by 6.96% over what you initially put in, from £1000 to £1069.60. £19.60 of that £69.60 value growth happens to be due to "dividends sent to the fund by portfolio companies less running costs of the fund", and the other £50 of that is due to "the portfolio companies owned by the fund becoming generally more valuable over the course of the year".

If you choose the Inc fund, the fund will send £19.60 to your ISA platform and then the remaining fund value will only be £1050 because all it has is £1050-worth of investee companies and zero cash because it sent all the spare cash to your ISA. But if you choose the Acc fund, it will not send £19.60 of cash to your ISA - it will hang onto that money and buy another £19.60-worth of investee companies. So it will still be worth £1069.60.

By choosing to invest in the Acc fund you are explicitly saying to the fund manager that you *do not* want him to distribute any money to your ISA platform account- because all you would want to do with it if you received that £19.60 cash in your ISA is request that it is invested back into the fund it just came out of.

So, by saying "don't send me any money, I don't want it", you are asking them to keep the £1069.60 of fund value and just reinvest the money they got from the underlying portfolio companies, to make more investments into portfolio companies. It does not matter to you how much of the increase in value was to do with income and how much was to do with the companies becoming more valuable, because you've said you don't want the income in cash anyway because you've got no use for it at the moment.

In an ISA there are no tax considerations because you don't pay income tax or capital gains tax so you don't need to calculate separately the income bit and the gain or loss bit. If you wanted to go and read the fund's annual report or factsheet you could look back and work out what had happened but in an Acc fund this is all happening behind the scenes and the different components of overall value generation are not something that you see moving through your online ISA, because you explicitly wanted it to happen behind the scenes and automatically so you didn't have to get involved with receiving cash and reinvesting it into the fund.

As you are not manually reinvesting any money yourself (not putting anything more into the fund) in an Acc scenario, the quantity of fund shares you own does not increase. However, each Acc share is more valuable than it would have been if it had been an Inc share that kept throwing cash back out of the fund and into the investors hands, which is an action that reduces the value of each Inc share every time they do it.

Thanks bowlhead, just read your post after my response to badger09. Your response explains it perfectly - thanks again.

badger09

Audaxer wrote: »

No need to shout, badger09. You sound annoyed and irritated that I asked a simple additional question following bowlhead's post. I did read the post, and understand that the Acc fund would now be valued at £1,069.60. I just wondered if the account would show that £19.60 of that growth was due to what would have been the dividend on the Inc account.

The VLS60 Acc fund shows a yield of 1.51%. If I had for example £100k invested in that fund I thought it would be nice to actually see a £1,510 'dividend' added to my balance, rather than just seeing an increase in the value and not knowing whether it was just normal growth.

If it does not show that's fair enough, but that's all I was asking.

Sorry:o

I didn't mean to shout and I certainly wasn't annoyed or irritated that you asked an additional question following bowlhead99's post.

I am one of his biggest fans. He is amazingly knowledgeable and helpful, but he can be verbose and sometimes its difficult to pick out the 'nub of his gist'. That's all I was trying to do for you, and anyone else reading his [STRIKE]essay[/STRIKE] explanation;)

AimHigh

BH - yet again, many thanks for the explanation. I'm currently using HL as my funds are so small that the higher charge doesn't bother me so much. I may well change that out as it grows though. However, HL state that if you don't have any cash in your ISA account then they will check for cash in your Fund and Share account to seek the 0.45% platform fee. Given that I have both, I plan to just drop some cash into the F&S account so that they can take the charges from there. My reasoning here is that if I were to put some spare cash in the ISA purely to covers fees then it would be a waste of my ISA allowance (even though it'll be a minimal amount of money at this stage).

Given my track record in this thread, I'm assuming there's probably a gaping hole in that plan so please feel free to point it out

Anyhow - I guess the conclusions are this:

1. Invest a lump sum into the VLS80 Acc fund (being an acc fund, the 0.22% fund charge will be automatically taken from any dividends paid so I will never see this).
2. Drip feed this fund on a monthly basis.
3. Leave a small amount of cash in my F&S account to cover the platform fee.
4. As the fund grows, look to swap to a cheaper provider (e.g. CSD)
5. As I get more knowledgeable, look to invest in additional funds and perhaps even individual stock picks at some point.

Thanks for all the advice one and all, it's been immensely useful.

AH

ian-d

That is a good point, I don't yet have a clue how HL take their 0.45% charge from my ISA products. Do I need to have 'cash' in each account to cover this? I was concerned by this as it would take money out of my ISA wrapper? If there is no spare balance, will they just take it from my nominated account instead (which is fine)?

ColdIron

AimHigh wrote: »

However, HL state that if you don't have any cash in your ISA account then they will check for cash in your Fund and Share account to seek the 0.45% platform fee. Given that I have both, I plan to just drop some cash into the F&S account so that they can take the charges from there

Given my track record in this thread, I'm assuming there's probably a gaping hole in that plan so please feel free to point it out

They will only do this if there is no cash in your income or capital account if you are using the default Standard option. You should change your Fee Collection Options from 'Standard' to 'Collect fees outside account where possible' if you want to maximise your ISA

ColdIron

ian-d wrote: »

That is a good point, I don't yet have a clue how HL take their 0.45% charge from my ISA products. Do I need to have 'cash' in each account to cover this? I was concerned by this as it would take money out of my ISA wrapper? If there is no spare balance, will they just take it from my nominated account instead (which is fine)?

You need to read the Fee Collection Options under Account Settings
If you have cash in the account they will use it otherwise they will sell units or shares to cover the fees. They will never automatically take money out of your nominated account. Think about it, this could cause you to exceed your annual allowance

AimHigh

ColdIron wrote: »

They will only do this if there is no cash in your income or capital account if you are using the default Standard option. You should change your Fee Collection Options from 'Standard' to 'Collect fees outside account where possible' if you want to maximise your ISA

Thanks ColdIron - I've updated the account settings to that option now. So now it's set to 'collect fees outside account where possible', I'm assuming 'outside account' means in any other accounts I have with HL? That's what I understand from your comment but just checking

AimHigh

ian-d wrote: »

That is a good point, I don't yet have a clue how HL take their 0.45% charge from my ISA products. Do I need to have 'cash' in each account to cover this? I was concerned by this as it would take money out of my ISA wrapper? If there is no spare balance, will they just take it from my nominated account instead (which is fine)?

I've also noticed an option to get an email update if they're about to sell any of your shares to fund their charges. May be worth turning it on to get a heads up if you've forgotten to throw any cash into the correct account etc.

That being said, I'm unclear as to whether it's just a 'heads up, we're selling some of your shares' or a 'we're about to sell some of your shares so this is your last chance to pay them from a diff account'.

ian-d

AimHigh wrote: »

I've also noticed an option to get an email update if they're about to sell any of your shares to fund their charges. May be worth turning it on to get a heads up if you've forgotten to throw any cash into the correct account etc.

That being said, I'm unclear as to whether it's just a 'heads up, we're selling some of your shares' or a 'we're about to sell some of your shares so this is your last chance to pay them from a diff account'.

I think they notify you so you can load some money in if you want but not got there yet. I don't really want them to use my ISA or SIPP money to cover this but I don't have any other accounts with them so well see.