Vanguard ACC funds

frankie

Probably a silly question but, when or how do I see an accumulated amount on my acc funds. I have 4 ACC funds doing OK but I cannot see how the gains on the funds are accumulated or when they 'buy' more value.


Any ideas or insights please.

Linton

The dividends are added to the main fund as they are received and so each unit will steadily increase in value even if the underlying investments have not risen in price. Compare the price of Acc and Inc units of the same fund over time.

masonic

They do not 'buy' more value, they keep all income within the fund, as opposed to Inc funds, which separate it and distribute it periodically.

That cash will be used to buy more of the underlying investments, but this will be lost in the day to day trading within the fund. On any given day it might receive dividends from company X and Y, plus some cash from investors, so it will combine those funds and use them to buy investments. Or investors might in aggregate withdraw cash from the fund, in which case the fund will sell investments and use the dividends plus sale proceeds to repay investors.

talexuser

For example on Trustnet today:

Lifestrategy 100% Accumulation, after 5 years, growth =71%

Lifestrategy 100% Income paid out to you, after 5 years growth = 57%

Blackavar

But on the Income Fund the holder receives income while holding the same amount of Funds whereas in ACC the holder needs to sell/reduce funds to realise a profit. I am pretty new to this so this may be a misunderstanding on my part.

Audaxer

Blackavar wrote: »

But on the Income Fund the holder receives income while holding the same amount of Funds whereas in ACC the holder needs to sell/reduce funds to realise a profit. I am pretty new to this so this may be a misunderstanding on my part.

That's true. If the INC fund pays a dividend of say £1,500 on £100,000, the INC fund would still be worth £100,000, but the ACC fund would be worth £101,500, so if you wanted to realise the gain on the ACC fund you just sell £1,500 worth of units to get the same result.

bowlhead99

Blackavar wrote: »

But on the Income Fund the holder receives income while holding the same amount of Funds whereas in ACC the holder needs to sell/reduce funds to realise a profit. I am pretty new to this so this may be a misunderstanding on my part.

The fund receives the income from its investments in either case. There is just an administrative difference between the two classes. The ACC fund spends the received income on buying more investments for the fund, while the INC fund distributes the received income to its investors.

If you use the ACC fund you have still got a taxable 'profit' from the dividends received by the fund, even if you choose to let the fund spend that money on buying more investments for itself rather than sending the cash into your pocket. If you want to get cash into your pocket, you will have to sell some units. However many you want, depending on how much cash you want to get into your pocket and how much you want to keep invested.

Whereas, if you use the INC fund, they send the cash to your pocket; but that means that if you want to keep as much as possible invested in the fund rather than sitting in your pocket, you will need to spend the money that's now in your pocket, on buying more shares in the fund. Otherwise the money will sit idly in your pocket. So you would perhaps spend some or all of the income distribution on buying new shares. However many you want, depending on how much cash you want to keep in your pocket and how much you want to have invested.

It is unlikely that the amount of natural income you get from a fund after costs, with its particular mixture of underlying investments and costs, will correspond with exactly how much cash you want to take out of the fund. But if you use the Inc version it is easier to see what is going on because the income keeps getting distributed by the fund and arriving in your account, and you can decide how much of it you want to reinvest into the fund, or reinvest into something else, or spend, etc.

frankie

Thank you all for your insights but, in my case I cannot see anywhere on the Vanguard fund documents where a dividend has been use to buy more 'shares'/'units'.


I still have the same number of 'units' that I bought 3 years ago, I can see that the value of the units changes over time depending on market changes, but I just seem to be standing still not gaining anymore units?


Have I totally misunderstood?

Linton

frankie wrote: »

Thank you all for your insights but, in my case I cannot see anywhere on the Vanguard fund documents where a dividend has been use to buy more 'shares'/'units'.


I still have the same number of 'units' that I bought 3 years ago, I can see that the value of the units changes over time depending on market changes, but I just seem to be standing still not gaining anymore units?


Have I totally misunderstood?

With Acc funds the dividends are not used to buy you more units, they are used to make your existing units bigger.

talexuser

frankie wrote: »

Have I totally misunderstood?

Yes, the price of your acc units has grown MORE than the price of the same value of income units you would have bought at the same time. So if you sold the acc units now you would have a profit compared to selling the income units, and that profit would be comparable to the dividends the income units would have paid out during the time period.

If you spent the dividends buying more units in the income fund as you went along, yes, you would have more units, but the total value of those greater no of inc units would be comparable to the original no of acc units over the same time period because each income unit costs less. In fact you would probably lose out a little since there would be transaction costs in reinvesting dividends that you don't have to pay in the acc units.

Blackavar

Thanks for taking the time to provide a great explanation. As a new investor, I assumed that my 'number of units' would increase over time as any increase in value would buy more 'units' in the Fund. Thanks for explaining