Very basic INC vs ACC question

Blackavar

I have a small drawdown SIPP that I’ve been running for a few months. It is pre-loaded with various funds (long story), a few of which I’ve switched out for some favourites.

Many of the funds are INC as opposed to the ACC that make up my S&S ISA.
I have been getting a small income from the INC funds but they are also increasing in value – I thought the value would remain the same?
Also the ACC funds, while increasing in value, the number of units held remains constant – I thought the number would increase?
I obviously have a basic misunderstanding of the Income and Accumulation option.
Just when I thought I was getting the hang of it.
Please educate me.

Brynsam

A quick Google would get plenty of explanations e.g. https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/income-or-accumulation

If you look on your SIPP provider's website they too are likely to have a good explanation. 

No point regurgitating it all again here - but please come back if you still can't grasp it.

dunstonh

I have been getting a small income from the INC funds but they are also increasing in value – I thought the value would remain the same?

No.  All you are doing is getting the dividend/interest distributions paid out.  However, the underlying assets (shares etc) change in value daily and that influences the unit price.

Also the ACC funds, while increasing in value, the number of units held remains constant – I thought the number would increase?

No.  What you describe is inc units with income reinvested.  Acc units retain the distributions within the fund and it is reflected in the unit price.

AnotherJoe

Blackavar said:

I have a small drawdown SIPP that I’ve been running for a few months. It is pre-loaded with various funds (long story), a few of which I’ve switched out for some favourites.

Many of the funds are INC as opposed to the ACC that make up my S&S ISA.
I have been getting a small income from the INC funds but they are also increasing in value – I thought the value would remain the same?
Also the ACC funds, while increasing in value, the number of units held remains constant – I thought the number would increase?
I obviously have a basic misunderstanding of the Income and Accumulation option.
Just when I thought I was getting the hang of it.
Please educate me.

Lets say one of the shares in the fund is Apple.

Apple pay about (from memory) 1.5% dividend.

Apple shares also appreciate in value, let say by 10% in a period.

In an income fund with 10% Apple, the 1.5% is paid to you and the shares have risen by 10% so the fund rises by 1% on account of Apple (eg 10% of 10%).

In an Acc fund, the fund rises by the same 1% but also the 1.5% dividend is retained, so the fund rises by 1.15% overall.

Blackavar

dunstonh said:

I have been getting a small income from the INC funds but they are also increasing in value – I thought the value would remain the same?

No.  All you are doing is getting the dividend/interest distributions paid out.  However, the underlying assets (shares etc) change in value daily and that influences the unit price.

Also the ACC funds, while increasing in value, the number of units held remains constant – I thought the number would increase?

No.  What you describe is inc units with income reinvested.  Acc units retain the distributions within the fund and it is reflected in the unit price.

Thank you. A new lesson learned. Thanks for taking the time.

Blackavar

AnotherJoe said:

Blackavar said:

I have a small drawdown SIPP that I’ve been running for a few months. It is pre-loaded with various funds (long story), a few of which I’ve switched out for some favourites.

Many of the funds are INC as opposed to the ACC that make up my S&S ISA.
I have been getting a small income from the INC funds but they are also increasing in value – I thought the value would remain the same?
Also the ACC funds, while increasing in value, the number of units held remains constant – I thought the number would increase?
I obviously have a basic misunderstanding of the Income and Accumulation option.
Just when I thought I was getting the hang of it.
Please educate me.

Lets say one of the shares in the fund is Apple.

Apple pay about (from memory) 1.5% dividend.

Apple shares also appreciate in value, let say by 10% in a period.

In an income fund with 10% Apple, the 1.5% is paid to you and the shares have risen by 10% so the fund rises by 1% on account of Apple (eg 10% of 10%).

In an Acc fund, the fund rises by the same 1% but also the 1.5% dividend is retained, so the fund rises by 1.15% overall.

Perfect. Great explanation. Thanks

[Deleted User]

Going forward, its a good idea to research what you are spending your hard earned money on. This isn’t a big deal but hopefully you researched the underlying assets that you paid for.
On a side note, I find ACC ETFs save a little labour and some costs but INC are helpful because they generate some cash for rebalancing.