Completed First Year of Investing. Question regarding Acc. Funds.....

scoot65

*Warning, probably a very silly question incoming....

I've recently completed my first year of having a stocks and shares ISA. The ISA is with iWeb and my holding is VLS 60 (acc funds).

Back in February 2018 I bought £20k of VLS 60 which got me 115.2118 units.

I know that the value goes up and down, however by selecting 'Acc' fund I thought that by choosing 'accumulation' after a year I would see increase in the amount of units I hold i.e. some kind of accumulation payment.

My question is, if there is no increase in units held, what is actually 'accumulating'?

Thanks...

HarryGray

Acc means that your dividends are reinvested. Inc means your dividends are paid to cash.

I believe that your units will not increase as the dividends don't produce 'new units', but the value of your units will increase.

AnotherJoe

The value of your units has risen. It's spread out over the year so you can't see it directly. You can compare price of inc and acc units over a few years to see

eskbanker

The difference between Acc and Inc units is clearer when charting them alongside each other - over the past year the value of each VLS60 Acc unit has grown by 7.2% while the Inc variant (B below) has only increased by 5.6%. The Inc ones drop by the 1.6% at dividend payout time in April:

bowlhead99

scoot65 wrote: »

.

My question is, if there is no increase in units held, what is actually 'accumulating'?

The fund received income over the course of the year which will build up in its bank accounts after paying for its running costs.

As these profits are made (ie as the income accumulates in the fund's bank account), the value of the units goes up - because the value of a fund unit is the value of that unit's proportional share of all the fund's assets and liabilities ; and one of those assets is a nice growing bank account.

If it was a distributing / income type of unit, they would use the bank account to pay cash out to the owners of the units and the value of the unit would fall when that happens (ie one day, instead of holding a valuable unit, you'll have a slightly less valuable unit in your hand and some cash in your pocket)

However, you choose the accumulation units instead of the income units, so you're basically saying you don't want the cash payments. So, there is no payout, and the unit doesn't fall in value : you still have the valuable unit and zero cash in your pocket.

So what has 'accumulated' rather than being paid out, is the dividend income which was received by the fund from the various investee companies. The fund manager will realise that the fund has lots of spare money in its bank account (because it's not making any payments to unitholders) and will ensure the spare money gets invested into more investment assets. But that doesn't mean he gives you more units. You keep the units you've got, and they will rise in value more than if they had been paying cash out to you.

dunstonh

I know that the value goes up and down, however by selecting 'Acc' fund I thought that by choosing 'accumulation' after a year I would see increase in the amount of units I hold i.e. some kind of accumulation payment.

If you had bought income units and the income was reinvested then the unit count would go up. Acc units, as mentioned in the above replies, sees the unit price go up higher instead.

The outcome is much the same regardless of method. Increasing unit count multiplied by lower Inc unit price = stable unit count multiplied by higher Acc unit price.

ColdIron

scoot65 wrote: »

Back in February 2018 I bought £20k of VLS 60 which got me 115.2118 units.

So you have 115.2118 units now and will still have 115.2118 units in a years time or ten years time, that's what you purchased and is recorded on your contract note. As others have pointed out the value of each unit should broadly increase. You will have 115.2118 units until you sell some of them or buy more units and get another contract note detailing the number of units you bought or sold.

scoot65

Many thanks for the detailed replies. I can now see how the the acc. / inc. funds work. Thanks again, very much appreciated.