Dividends in acc funds

Herbalus

There was a recent thread talking about acc and inc versions of funds and tax reporting on the dividends. All my investments are in ISAs so tax reports are not an issue for me, and I have acc funds because of ease in re-investing them.

My question is: how do you know what the dividends are? Do they appear as additional investments on the transaction listing? Do they increase each unit in the fund? I have index tracker funds.

The fact sheets on my funds give an annual dividend date in June. Last year was 2.38% from memory. I started investing last August so have not experienced this yet. I make monthly contributions so presume dividends are paid on an average basis?

AnotherJoe

The dividends "appear" as an increase in price of the units which generally won't be visible among the day to day changes.
If for interests sake you wanted to know what they are look in the reports they issue.

Keep_pedalling

I get an annual report with all that info on my GIA account. It would make doing my SA difficult without it.

ColdIron

Herbalus wrote: »

My question is: how do you know what the dividends are? Do they appear as additional investments on the transaction listing? Do they increase each unit in the fund? I have index tracker funds.

Imagine your tracker tracks 100 underlying companies, each company will pay dividends into your fund in dribs and drabs, annually, semi-annually, quarterly or whatever. As the fund is increasing in value slowly because of the dividends (ignoring any other factors such as changes in the value of the underlying shares) the unit price will increase

The fact sheets on my funds give an annual dividend date in June. Last year was 2.38% from memory. I started investing last August so have not experienced this yet. I make monthly contributions so presume dividends are paid on an average basis?

As you have Acc units nothing will happen for you in June as you have not requested them to be paid out as they would be in an Inc fund, they have simply been retained within the fund and the unit price of the Acc fund will be higher than those in the Inc fund

In a GIA you would receive an annual Consolidated Tax Certificate from your platform detailing dividends, equalisation payments etc as these are required for HMRC reporting. Within an ISA no reporting is necessary. If you want to see the effect of your dividends for each fund you could dig into the reports issued by the fund but an easier cheap 'n cheerful method might be to compare the unit price of the Acc and Inc versions by overlaying them in a chart, cumulative/discrete tables etc

Herbalus

Thanks. Inc version is 17601 and acc version is 19336 so that all makes sense.

The question was how you can evaluate the dividend performance of a fund relative to the change in value of underlying shares. If the unit price increases, is this shares or dividend change for example?

I was thinking that the ftse100 level for example was in some way related to the unit price so over a 10 year period where the ftse100 level made no change, how would dividends be accounted for. My first thought was that the dividends in an acc fund would buy more units, but I have checked the hsbc ftse250 tracker at random to test and the acc unit price is again higher so this holds true there also (not that I doubted you all )

bowlhead99

The question was how you can evaluate the dividend performance of a fund relative to the change in value of underlying shares. If the unit price increases, is this shares or dividend change for example?

If the unit price increases in an acc fund by x%, it will be a combination of 3 to 4 headline things, depending on how you categorise them.

a) capital gains on your starting capital for the year ;

b) dividends received (net of operating expenses) on the starting capital for the year ; and

c) capital gains (and (d) dividends received) on the net dividend proceeds that were received in (b) and reinvested for you instead of distributed to you.

If the share price growth of the ACC fund is x%, or, (a+b+c+d), but the share price growth of the INC fund is only (a)... because INC paid out its dividends and didn't get any capital or income returns on reinvested dividends... then you can compare the percentage change in unit price of the ACC class you're looking at with the percentage change in unit price of the equivalent INC share class. And you can say that the difference is (b+c+d), because the Inc share price does not have any undistributed dividends, or any capital gains or income earned on reinvested dividends.

If you take the dividends paid on the INC share class for the year as a percentage of the INC starting share price, you generally have the figure (b), that is, the income (net of operating expenses) earned on your starting capital.

If you take the dividends on your ACC fund tax certificate provided by the platform provider or fund manager, that's (b+d); all the dividends (net of expenses) earned on your [starting capital and reinvested income].

It follows that therefore the difference between the ACC share price growth percentage (a+b+c+d) and the [INC share price growth (a) plus the divs showing on the ACC fund tax certificate (b+d)] will give you the figure (c) ; capital growth on reinvested dividends.

So, if you have a tax certificate from the ACC fund (or read their financial report) and you also look at the equivalent INC fund price change (with no dividend reinvestment, so not its "total return assuming reinvested dividends" figure that it might publish, just the raw price change percentage) you can basically figure out a, b, c and d.

It can get a bit more complicated where some funds will pay their expenses out of capital receipts and not just income receipts, so the dividend payments (or reinvestments) might not be simply "dividend income from investee companies less running costs of the fund", they might be, e.g., "dividend income from investee companies less 60% of the running costs of the fund". Still, let's not make a simple example more complicated.

I was thinking that the ftse100 level for example was in some way related to the unit price so over a 10 year period where the ftse100 level made no change, how would dividends be accounted for.

The dividends would be earned by the fund from the constituent companies such as Lloyds or BAT in which it invests, but never paid out to the investors of the fund, so that the value of the fund would go up getting more and more valuable even though the remaining capital value of the FTSE didn't go up because its companies kept paying divs out to their investor.

You can think of an Inc fund as a middleman or through-road. You invest in it, it invests in HSBC and Shell. In the opposite direction, HSBC and Shell pay dividends to their investors (including the fund), the fund pays the dividends to its investors (including you).

Whereas the Acc fund is still a middleman but it's closed one of its gates to dividend traffic. You invest in it, it invests in HSBC and Shell. In the opposite direction, HSBC and Shell pay dividends to their investors (including the fund), the fund *doesn't* pay the dividends to its investors. It just grows fat with dividends, and reinvests the spare money to buy more shares of HSBC and Shell. So as an investor you own something more valuable than if you had received the divs out of the fund and spent them.

My first thought was that the dividends in an acc fund would buy more units

Nope, you still own the same number of shares or units in the acc fund which you bought, but they are more valuable now, because money that could have been put into your hands as a dividend has instead been invested in more HSBC and Shell and Lloyds and BAT shares etc.

For tax purposes though, the dividend allocated to you as a holder of Acc shares or units in the fund is still taxable dividend income even though you don't receive it in cash; and that reinvested dividend money that you never saw (but know was invested for you behind the scenes) can be added to your acquisition cost when you eventually sell your shares and do a capital gains tax calculation (i.e. comparing the sales proceeds of your sale, with your personal 'real cash' acquisition cost of the shares you sold and the 'virtual' dividend money that was invested for you after being allocated to you).