Accumulation units - ex-dividend and payment date confusion

InvesterJones

Hi all, I'm looking with some confusion about ex-dividend and payment dates for accumulation units in a unit trust fund (I can't link yet, but I was going to use a fund called "Legal & General US Index Trust (I) Accumulation" as an example. It has both an ex-dividend date and a payment date.)

I understand the process for income funds - if you hold units on the ex-div date then you'll get an income payment on the payment date (about 2 months after ex-div date in this case).

But I'm confused what the same dates mean when they're given for an accumulation fund - when exactly do the dividend proceeds that would otherwise go to an income payment increase the value of the units? Is it on the ex-div date, the payment date, or neither and instead a gradual accumulation through the year (ie daily)?

[Deleted User]

Hi,

here's a recent similar thread.

InvesterJones

[Deleted User] said:

Hi,

here's a recent similar thread.

Hi, thanks for the reply. Yes, I'd read that thread, there is no discussion about why an accumulation fund would have ex-dividend and in particular payment dates.

Alexland

InvesterJones said:

if you hold units on the ex-div date then you'll get an income payment on the payment date

You would need to hold the units before the ex-divi date to get the income.

InvesterJones said:

But I'm confused what the same dates mean when they're given for an accumulation fund - when exactly do the dividend proceeds that would otherwise go to an income payment increase the value of the units? Is it on the ex-div date, the payment date, or neither and instead a gradual accumulation through the year (ie daily)?

The income from the underlying holdings gradually increases the NAV / unit prices of both an income and an accumulation fund until on an income fund the unit prices would drop on the ex divi date. There isn't a specific date the accumulation fund increases - it just doesn't drop as an income fund would.

InvesterJones

OK that's clear thanks. So the dates are just.. meaningless unless I wanted to look at income units for the same fund.

Alexland

InvesterJones said:

So the dates are just.. meaningless unless I wanted to look at income units for the same fund.

Yeah pretty much meaningless info although the fund manager will have their own decisions / policy on when they reinvest the cash that builds up inside the fund. They know they will need enough cash to pay the income fund holders and will have a few percent floating around in cash to cover redemptions etc depending on normal trade volumes and how liquid they consider the underlying holdings etc.

Linton

Dividends paid into an ACC fund are taxable as dividends even though you never directly see them.

The dates affect the tax calculation which is based on the fiction that dividends are received as from an INC fund.  This gets complicated when you buy an ACC fund in the middle of a tax year but I wont try to explain that here.

If you hold the ACC fund in an ISA or pension the dates are irrelevent.

haveabreak

"InvesterJones said:

when exactly do the dividend proceeds that would otherwise go to an income payment increase the value of the units? Is it on the ex-div date, the payment date, or neither and instead a gradual accumulation through the year (ie daily)?

On the payment date. On this date it increases the book value of the units. This is important. When you sell your accumulation fund and you work out your capital gain you account for the div paid on this date to increase the book value of the units. This is so you don't pay tax twice (see below). It is not the ex-div date.

You still pay tax on accumulated (notional) dividends. Your broker will give you a dividend schedule/tax certificate at the end of the tax year showing mainly div paid date and div paid amount. You include this on your tax return and pay tax on dividends (usually only if greater than £2k at 7.5% i.e. above the dividend allowance)

The ex div date is useful for tax planning, say, if you don't want a notional dividend and don't want to pay tax on it. Therefore you could sell your accumulation fund before the ex-div date and then you won't received the notional dividend and it won't be included in your tax certificate from your broker.

The above is assuming you are not in an ISA.

https://www.youinvest.co.uk/faq/what-difference-between-income-and-accumulation-units

Hope this helps. 

Thrugelmir

InvesterJones said:

But I'm confused what the same dates mean when they're given for an accumulation fund - when exactly do the dividend proceeds that would otherwise go to an income payment increase the value of the units? 

The cash (or accrued income) received by the fund will be reflected in the daily valuation of the unit prices. In the same way that management fees and other costs will be accounted for. Any dividend paid out is notional. This is due to the tax treatment of OEICS as opposed to closed end investment vehicles. All net income has to be distributed annually. 

ColdIron

haveabreak said:

"InvesterJones said:

when exactly do the dividend proceeds that would otherwise go to an income payment increase the value of the units? Is it on the ex-div date, the payment date, or neither and instead a gradual accumulation through the year (ie daily)?

On the payment date. On this date it increases the value of the units.

I'm afraid not, the unit value does not 'jump' on the Payment Date

Between ex-dividend dates the dividends from the underlying holdings are paid into the fund (both Acc and Inc) in dribs and drabs as they arise and slowly increase the unit price to reflect the added value to the fund. On the ex-date the unit price of the Inc class will fall as new investors no longer have the rights to the dividend, the Acc class will be unaffected. On the Payment Date the dividends will be paid out to to holders of the Inc class and will not affect the unit price of either class

haveabreak

ColdIron said:

haveabreak said:

"InvesterJones said:

when exactly do the dividend proceeds that would otherwise go to an income payment increase the value of the units? Is it on the ex-div date, the payment date, or neither and instead a gradual accumulation through the year (ie daily)?

On the payment date. On this date it increases the value of the units.

I'm afraid not, the unit value does not 'jump' on the Payment Date

Between ex-dividend dates the dividends from the underlying holdings are paid into the fund (both Acc and Inc) in dribs and drabs as they arise and slowly increase the unit price to reflect the added value to the fund. On the ex-date the unit price of the Inc class will fall as new investors no longer have the rights to the dividend, the Acc class will be unaffected. On the Payment Date the dividends will be paid out to to holders of the Inc class and will not affect the unit price of either class

Yes that's how equalisation comes into play from what i recall. I was talking about the book cost of the units. You can increase the book cost of the units by the div amount on the div payment date i.e. when working out capital gain. Will correct my post.