Accumulation vs Income (S&S ISA)

20122013

My current platform has a high platform fee but no charge to sell and buy funds. , So I am looking to switch funds before transferring out.

The new platform has a fee of £5 per transactions. From year 3, I hope to get some income from this S&S ISA fund and would it make sense to go with an INC as the tax free income will be paid directly to my bank account so no transactions fee, or ACC fund in case I don't need the income so it gets reinvested ?

I think ACC will be more suitable, as the 2% return will be about £150 pcm before the transaction fees?

I want to check that I have not missed anything out..

eskbanker

The choice of acc versus inc really does come down to whether or not you want to pay the income out - the £5 transaction fee is presumably the cost of buying or selling units, and dividend reinvestment is often charged differently.  You won't need to stick to your original choice anyway and can start with acc and move the pot into inc later on, once your income requirements are clearer....

leosayer

I'm not sure what you mean by " I am looking to switch platform before transferring out." or what your objective is.

Dividends from Inc units normally get paid into the cash account in your ISA. Once there the cash can then be:
1. Retained
2. Paid out to your personal bank account
3. Reinvested to buy you more units in the same fund

Acc units avoid this because the dividend is rolled up into the ongoing price of the fund units. 

Some platforms also also automatically sell units in your funds to cover their platform fees.

20122013

leosayer said:

I'm not sure what you mean by " I am looking to switch platform before transferring out." or what your objective is.

Dividends from Inc units normally get paid into the cash account in your ISA. Once there the cash can then be:
1. Retained
2. Paid out to your personal bank account
3. Reinvested to buy you more units in the same fund

Acc units avoid this because the dividend is rolled up into the ongoing price of the fund units. 

Some platforms also also automatically sell units in your funds to cover their platform fees.

Well spotted. I have edited it to 'switching funds before transferring out' 

Due to VERY high fees and too many funds mostly ACC all selected by my ex IFA I must switch.  I had thought that it would be better to reinvest any dividends back to the fund as this will increase the Ongoing charges but that would also happen even with investing with new money to the existing fund? or would this be different ? bottom line how to minimise the ongoing fees while increasing the in investment value? 

masonic

The way to minimise the ongoing fees is to shop around for the cheapest funds that achieve your objectives, while transferring to a platform with no (or low) custody charges. You will have to do something with the income, so if you aren't going to spend it, it's likely you'd want to reinvest it. Whether you do this via purchase of Acc units or manual/automated reinvesting of Inc units, is likely to be inconsequential in the bigger scheme of things, but going Acc is the simpler approach. If you plan to make regular contributions, then you can just sweep up any income you have received from Inc units into the next investment, and ensure you leave enough to cover any custody charges you will have to pay - suspect there are none and you are considering transferring to iWeb.

20122013

masonic 'The way to minimise the ongoing fees is to shop around for the cheapest funds that achieve your objectives' - I agree and once that is established, if I wish to keep re/investing then the ongoing charges will increase so it does not really matter whether it is via ACC or INC or with new money.  I am going to switch to HSBC’s global index fund ACC, interested to find out whether all Ongoing (fund) charges are the same and it is not platform dependent? 

masonic

If you are already choosing the lowest cost funds, then you are unlikely to find discounted units offered by some platform. Discounts are more common for already rather expensive funds, offered by rather expensive platforms, so you are usually worse off overall despite the saving.

Qyburn

20122013 said:

My current platform has a high platform fee but no charge to sell and buy funds. , So I am looking to switch funds before transferring out.

The new platform has a fee of £5 per transactions. 

Does the new platform have an ongoing custody fee, whether % or fixed? I've just shifted to Iweb, transaction charges but no custody charge. I have everything as Acc because I won't be frequently withdrawing and it saves the hassle of dividend reinvestment.

Different if your platform has a monthly fee, you presumably wouldn't want a £5 dealing fee to cash in units each time.

20122013

Qyburn  I am thinking of going with ACC (as I will not needing an INCOME just yet) and I was considering iweb due to no platform fee (but as 2 of my funds they cannot accept  they will sell and decide for me) I am leaning towards ii , they to have time to explain (general) things quiet well and once I get the hand of it I may move to iweb, When choosing a platform I am not sure whether the size of the pot matters. 

Qyburn

20122013 said:

Qyburn  I am thinking of going with ACC (as I will not needing an INCOME just yet) and I was considering iweb due to no platform fee (but as 2 of my funds they cannot accept  they will sell and decide for me) I am leaning towards ii , they to have time to explain (general) things quiet well and once I get the hand of it I may move to iweb, When choosing a platform I am not sure whether the size of the pot matters. 

If your current platform doesn’t charge dealing fees, why not tidy it up in place with the funds supported by Iweb. Then transfer when you're done. That's what I did going from HL to Iweb.

Unless those two funds are ones you really can't do without, what are they just out of interest?

Size of pot matters when comparing a platform with % fee vs fixed. For example just comparing HL (0.45%) vs Lloyds (£40/year) then HL costs less if your pot is £8,000, Lloyds is less if the pot is £9,000

20122013

For the fund  I want to buy  there is a ACC and a INC version and they each has its own unit price (the ACC unit price is higher).

I was reading this article:

https://www.boringmoney.co.uk/ask/why-are-accumulation-units-more-highly-priced-than-income-units-and-seem-to-show-much-higher/

and

In Paragraph 3: 'The key point here is that with accumulation units you don't receive additional units when the income is reinvested but the unit price is raised'

Would someone be able to tell me if I have understood this article correctly? With accumulation units you don't receive additional units when the income is reinvested but the unit price is raised?

If so, is it better to have received more units or have unit price increased?  If I am unlikely to withdraw income etc from the fund.

As I have switched all to ACC (I understand that these can be switch to INC  at any time).