Open ended or closed ended funds

IanManc

lr1277 said:

ColdIron said:

Not many index trackers in your portfolio then?

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The only thing I don't like buying is accumulation units. I don't know if these are limited to a particular fund structure. The reason is because in a general investment account, you are liable to pay tax on the added units. 

You are liable for gains or dividends regardless of Acc or Inc though I don't understand your point about 'added units'. The fund manager will create or destroy units to match inflows and outflows but this is transparent and of no consequence to you.

 With accumulation units, at dividend time, your dividend is calculated and that value of units is added to your holding. 

No units are added to your holding. The value of the units you own goes up because the manager reinvests the dividends, and you are liable to income tax on this reinvested dividend. 

It is the value of the units you own that goes up, not the number of units you own.

lr1277

masonic said:

lr1277 said:

Thanks @masonic. Would you mind explaining:

but it is easy to determine how many Acc units are gained from income - the answer is always zero.

Not sure I understand.

TIA

Suppose you buy 100 accumulation units for £1000 and the fund has a yield of 5%. In a year's time, you will still have 100 units. The unit price, not the number of units, is affected by income.

Sorry my misunderstanding. I thought income resulted in more units. Instead it seem any monies that could have made a dividend payment are put back in the fund thereby raising each unit's price.

Isn't that like if the money for the dividend hadn't been taken out of the fund in the first place?

Still might need to be declared on a tax return if the fund is held in a general investment account.

WinTogether

I had read the concept of NAV, and that the closed ended funds, due to the nature of how they trade, can trade at discount or premium to the NAV owing to sentiment and flows (caveat that the NAV may be stated incorrectly…)

also the valid point raised above is that the costs to buy and sell each structure varied on the platforms. So to does the cost to hold them on the platform.

masonic

lr1277 said:

masonic said:

lr1277 said:

Thanks @masonic. Would you mind explaining:

but it is easy to determine how many Acc units are gained from income - the answer is always zero.

Not sure I understand.

TIA

Suppose you buy 100 accumulation units for £1000 and the fund has a yield of 5%. In a year's time, you will still have 100 units. The unit price, not the number of units, is affected by income.

Sorry my misunderstanding. I thought income resulted in more units. Instead it seem any monies that could have made a dividend payment are put back in the fund thereby raising each unit's price.

Isn't that like if the money for the dividend hadn't been taken out of the fund in the first place?

Still might need to be declared on a tax return if the fund is held in a general investment account.

It's exactly like the money for the dividend hasn't been taken out of the fund, and the value of the dividend is still taxable if held unwrapped. This is because the underlying companies in the fund have still paid dividends to the fund. 

This is why it is simpler for tax purposes (CGT calculations mainly) to opt for Inc units. Investment platforms are required to provide a consolidated tax certificate with this income included, but CGT calculations may span many tax years and include fractions of an entire holding.

Linton

lr1277 said:

masonic said:

lr1277 said:

Thanks @masonic. Would you mind explaining:

but it is easy to determine how many Acc units are gained from income - the answer is always zero.

Not sure I understand.

TIA

Suppose you buy 100 accumulation units for £1000 and the fund has a yield of 5%. In a year's time, you will still have 100 units. The unit price, not the number of units, is affected by income.

Sorry my misunderstanding. I thought income resulted in more units. Instead it seem any monies that could have made a dividend payment are put back in the fund thereby raising each unit's price.

Isn't that like if the money for the dividend hadn't been taken out of the fund in the first place?

Still might need to be declared on a tax return if the fund is held in a general investment account.

The money is not taken out of an ACC fund.  However it is taxed as if it was.

Albermarle

WinTogether said:

I had read the concept of NAV, and that the closed ended funds, due to the nature of how they trade, can trade at discount or premium to the NAV owing to sentiment and flows (caveat that the NAV may be stated incorrectly…)

also the valid point raised above is that the costs to buy and sell each structure varied on the platforms. So to does the cost to hold them on the platform.

I think it is the case that investment trusts tend to react more to significant downward market movements. So in a market drop the IT's will not just move down as the NAV drops, but will also often move from a premium to a discount, or from a discount to a bigger discount.
I understand that bargains can be had with IT's with big discounts, following market turbulence, although of course it will not always work and there is always risk involved. 
It seems to be common advice not to buy IT's with large premiums.

LHW99

One other difference is that for IT's (ETF's, shares) you will know the price you buy / sell at (if the market is open). Open ended funds are usually only traded once a day, so you have to "put in an order" and see what turns up in your account in due course!

Hoenir

Investment Companies serve a practical purpose in enabling capital to be raised to fund expansion etc. They aren't just collectve investment vehicles. The large century old names. Started their lives by raising money to build canels then later railways. IC's can offer exposure to niche areas of the stock market. As always when choosing investments for a personal portfolio. A case of horses for courses. If you don't understand the business model walk away.