Accumulation funds - how does it work?

strawb_shortcake

In layman's terms how do the accumulation reinvestment work? 
I hold Vanguard global all cap acc in my LISA, I think the reinvestment date was 31/12 will I see an increase to my small portfolio from this.
My current units are 23.56 and looking at my account there has been no change as yet - appreciate the bank holidays may have delayed things but no idea what if any changes I'll see within my account 

TIA

dunstonh

In layman's terms how do the accumulation reinvestment work? 

Income funds pay the fund income out (either to your cash account or you directly - many people reinvest the distributions to buy more units if they don't need the income)

Accumulation units still generate an income and are taxed accordingly but the income is not paid out but retained in the fund and the unit price increased pro-rata.

If you reinvest income into new units on an income fund or buy an accumulation fund, the return will be the same.     A small number of platforms/providers may charge for reinvestment - most dont.

My current units are 23.56 and looking at my account there has been no change as yet

There wont be a change as you have accumulation units.  It would only change if you had income units with income set to buy more units.

ColdIron

If you have 23.56 units (either Acc or Inc) it won't change until you sell some or buy some more. Obviously if you have Inc units you could reinvest the dividends which were paid out to you yourself (i.e. buy some more)

Thrugelmir

annabanana82 said:

 will I see an increase to my small portfolio from this.

No. Income received and the accrual for income due but not received by the fund will already be priced into the value. 

GeoffTF

annabanana82 said:

I hold Vanguard global all cap acc in my LISA, I think the reinvestment date was 31/12 will I see an increase to my small portfolio from this.

No. If you had income units, the value of those units would fall by the value of the dividend on the ex-dividend date, because holders of those units will no longer be entitled to the dividend. If you have accumulation units, the dividend is retained (and reinvested) so the price does not fall.

Baoser

I posed the same question to VG. I thought as an accumulation, it would have been paid out as extra units added to your fund. Apparently not! Apparently the dividends are paid back into the fund (the pot if you will), so the value of the units go up. So say for example if you have 23.56 x £100 (per unit) before, the value of the fund will now be worth 23.56 x £102 (after dividend paid back into the fund).

Not sure how fair that is. If you have 10 units or 1000 units of a fund, you both benfit the same even though the person with 1000 units has invested more money in. Would have liked to see additions to my fund I think as units are calculated to 4 decimal places so I'm sure they can distribute fractions of a unit and let the unit prices be governed by market forces instead.

dunstonh

Not sure how fair that is. If you have 10 units or 1000 units of a fund, you both benfit the same even though the person with 1000 units has invested more money in

Answer this question.  Which has the highest value?
20x 5 or 5x20
That is the effectively what happens if you hold ACC units and INC units.

Would have liked to see additions to my fund I think as units are calculated to 4 decimal places so I'm sure they can distribute fractions of a unit and let the unit prices be governed by market forces instead.

Switch to income units and reinvest the income then.
Personally, I rarely buy accumulation units nowadays.  Decades ago, you didn't have much choice.  Today you do.

jimjames

Baoser said:

Not sure how fair that is. If you have 10 units or 1000 units of a fund, you both benfit the same even though the person with 1000 units has invested more money in. Would have liked to see additions to my fund I think as units are calculated to 4 decimal places so I'm sure they can distribute fractions of a unit and let the unit prices be governed by market forces instead.

It's absolutely fair. The dividend is a percentage of the holding so if you hold more you get more paid out (or added) If you want prices to be governed by market forces then you should buy investment trusts instead.

strawb_shortcake

Baoser said:

I posed the same question to VG. I thought as an accumulation, it would have been paid out as extra units added to your fund. Apparently not! Apparently the dividends are paid back into the fund (the pot if you will), so the value of the units go up. So say for example if you have 23.56 x £100 (per unit) before, the value of the fund will now be worth 23.56 x £102 (after dividend paid back into the fund).

Not sure how fair that is. If you have 10 units or 1000 units of a fund, you both benfit the same even though the person with 1000 units has invested more money in. Would have liked to see additions to my fund I think as units are calculated to 4 decimal places so I'm sure they can distribute fractions of a unit and let the unit prices be governed by market forces instead.

That's what I had wrongly assumed, but I see the income and accumulation funds have different values so reflective of the dividends

isayhello

dunstonh said:

Switch to income units and reinvest the income then.
Personally, I rarely buy accumulation units nowadays.  Decades ago, you didn't have much choice.  Today you do.

@dunstonh curious why you prefer not to go with acc units, do you prefer income then?

dunstonh

isayhello said:

dunstonh said:

Switch to income units and reinvest the income then.
Personally, I rarely buy accumulation units nowadays.  Decades ago, you didn't have much choice.  Today you do.

@dunstonh curious why you prefer not to go with acc units, do you prefer income then?

I have the income paid back into the cash account of the wrapper and use it to rebalance the funds that are out of sync (on growth portfolios).     Also, with unwrapped holdings it makes CGT calculations a lot simpler.