Equalisation in index fund

hermante

I believe equalisation is done to account for recent buyers of a fund having to pay for dividends already held by the fund (in the form of a higher unit price) while not being entitled to those dividends.

Specifically I am interested in the HSBC FTSE All-World fund, whose annual reports can be found here

https://www.assetmanagement.hsbc.co.uk/en/intermediary/funds?v=Documents

From the reports, the ex-div date is 15 May each year. Group 1 shares are those purchased before 16 May of the previous year, and Group 2 shares are those purchased between 16 May  last year and 15 May this year.

All shares get the same dividend, but Group 1 dividends are considered entirely income while Group 2 dividends are split into an income amount and an equalisation amount.

What I am confused about is how there is a single equalisation amount for all Group 2 shares? I thought that the later in the year you bought your shares, the higher the proportion of your dividend that would count as 'return of capital' (albeit in the case of accumulation units, it's all going to be reflected in a higher unit price anyway). So I thought it would have to be worked out daily and each new shareholder would have their individual split between income and capital gain.

The reason I am researching this is because while I hold the units in a UK ISA, I have found that I will be tax resident in another country for a period of time and therefore need to report it there. But being in an ISA, no tax information is provided by my broker. Meaning I may have to rely on the figures I found in the reports I linked.

GeoffTF

It does not make much sense, but that is how it is. The equalisation rate for Group 2 units is the average for all holders of Group 2 units.

ColdIron

hermante said:

The reason I am researching this is because while I hold the units in a UK ISA, I have found that I will be tax resident in another country for a period of time and therefore need to report it there.

You don't need to report equalisation as such, though you may need it later for CGT purposes. You probably need to report the actual dividends so much the same problem just the other way around

I am making a lot of assumptions regarding foreign tax regimes but assume they are not too different to the UK

But being in an ISA, no tax information is provided by my broker. Meaning I may have to rely on the figures I found in the reports I linked.

That's right, no tax certificate for an ISA. For income units, some platforms provide distribution details (dividends and equalisations) even within an ISA, mine does. You may be able to go back though your platform's statements for the year, or perhaps your own records, and determine it yourself

 For income units anyway, accumulation units will be trickier, I've never seen these split out