How do Accumulation Units work?

Pheno

Some stocks and shares funds have accumulation units (basically they pay any share dividends back into the fund).

Does anyone know how this is actually done? For example, I just closed down a fund and was expecting some accumulation units on top of its value, but there weren't any.

Are accumulation units only given on a specific day or days? If so, do you get nothing if you, for example, close down the fund the day before it is due to pay them out?

carnet

Some funds offer both income and accumulation units, some (mainly income funds, strangely enough ) offer only income units, whilst others (mainly growth funds where there is little income) offer accumulation units only.

Accumulation units are not added on to your holding. You either purchase income or accum. units at the outset.

As an example, a fund offering both income and accum. units which has been in existence for a number of years might have its income units priced at, say, 150p whereas its accum. units might be at 200p.

The income units are less because the income unitholders have the income paid out to them and the price just reflects any capital growth (on top of the original unit price) since inception.

The accum. unit price is higher as, not only do they have the same capital growth as the income units but also all income has been rolled up and not paid out to unitholders over the years and is thus also reflected in the accum. unit price.

If there is a choice, its up to you to decide if you want income or accum. units when you buy the fund.

Pheno

Ah ok that makes sense!

Do you know how the management charges are made? Is it in a similar manner? ie even though the stock market is flat for a year your tracker units go down 0.5% in value due to charges?

carnet

Some funds charge the annual management fees to capital whilst others take it out of income.

Income funds usually, but not always, deduct it from capital - in order to keep the income payout as high as possible.

Conversely, funds mainly concerned with capital growth might take it out of income - if there has been enough over the period - as investors in growth funds aren't so much concerned with income (see income v. accum. unit post above ).