Accumulation vs Income funds

Pat38493

Another of my silly questions.

I’ve seen when looking at funds that some of them have an ACC and INC version.

I assume this means that for the income ones, the dividends are not reinvested but taken out?

How would this actually work in a pension - if I selected one of these funds, does this mean there would be an income each period which would then be paid back to cash in my pension wrapper?

However what would happen then - won’t the pension provider just turn round and re-invest it back in again according to the fund mix % I selected?

green_man

An INC fund will pay a dividend, what happens to this will depend on your particular arrangements. An ACC fund does not pay a dividend, instead what would have been paid as a dividend is used to buy/cancel units of the stock. Thus the stock price of the ACC fund should increase in value faster than the INC units.

I use primarily INC funds in my ISA as I draw from the cash balance every month (I.e. I withdraw most of the natural yield).  In my SIPP I use alternatively use  ACC units as I don’t draw down so often (once a year typically).  

Linton

The dividends paid out by an INC fund in a SIPP would be paid into the SIPP.  What you do with that cash is up to you, pay charges, invest in the same or different fund or transfer out to your bank account. The platform would generally not re-invest for you, but there is no reason why the SIIPP should not give you a reinvest option.  Though I know of none that do this for funds. 

If the account did not support cash holdings (eg typical employer's schemes) I would assume that INC funds would not be on the list of available funds.

dunstonh

I assume this means that for the income ones, the dividends are not reinvested but taken out?

Acc units are retained by the fund and increase the unit price
Inc units give you choices.  a) reinvest to buy more units in the same fund  b) reinvest into other funds  c) pay into your cash account to fund withdrawals.