ISAs - Accumulation or Income

edited 30 November -1 at 1:00AM in Savings & Investments
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BStubbinsBStubbins Forumite
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edited 30 November -1 at 1:00AM in Savings & Investments
Having been unsure about whether it was best to invest in Accumulation or Income ISAs, in July 2014 I decided to invest in LF Woodford Equity funds. I invested £6,200 in the Accumulation Fund and £6,200 in the Income Fund. Today I checked the value of each fund. It was :
Accumulation £ 7069 (same number of shares as beginning) - a 14% increase in value
Income £ 6,595 ( income was re-invested, so there are an additional 551 units) - a 6.3% increase in value

Does this mean, we should always invest in Accumulations Funds for the best returns?

Any insight would be welcome

Replies

  • Tom99Tom99 Forumite
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    If you are reinvesting in the same fund there is no point in choosing Inc fund for an ISA.
    In theory the return should be the same but the poorer performance on the income units will result from dealing costs, if they are payable, to reinvest the dividend and timing as you may find that the purchase price for you Inc fund reinvestment was higher than that applicable for the Acc fund.
  • edited 28 February 2019 at 8:12AM
    AnotherJoeAnotherJoe Forumite
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    edited 28 February 2019 at 8:12AM
    It may not be dealing costs,since many funds don't have a buy sell spread and there may be no cost from the isa to buy. There isn't with HL AFAIC, for example. It most likely simply is timing.

    With an acc fund, the dividends are immediately reinvested, with an inc there is inevitably a delay.
    Since, on average, a fund will have risen in any period, some of your investment is spending time out of the market and that, statistically and in the long term, will lead to poorer performance. In the short term, with the wrong fund, and this one must have been close, you could even see better performance with an inc since you've got some of your money invested with a rubbish fund for a shorter time.

    The lesson from this though, since all this is pretty obvious, would appear to be, dont invest in CF Woodford Equity Funds. 14% over 4.5 years is terrible. You'd have done better in fixed savings accounts.
  • edited 28 February 2019 at 10:11AM
    dunstonhdunstonh Forumite
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    edited 28 February 2019 at 10:11AM
    Does this mean, we should always invest in Accumulations Funds for the best returns?

    Doe your platform charge for reinvestments?
    Is your platform using part of the income to pay its charges (you normally set it from the cash account or via sale of units in the largest fund or proportionately)

    Personally, I always go for income units but the platforms I use dont charge anything for transactions. So, that is not an issue. If yours does, then it an issue for you.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • LintonLinton Forumite
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    BStubbins wrote: »
    Having been unsure about whether it was best to invest in Accumulation or Income ISAs, in July 2014 I decided to invest in LF Woodford Equity funds. I invested £6,200 in the Accumulation Fund and £6,200 in the Income Fund. Today I checked the value of each fund. It was :
    Accumulation £ 7069 (same number of shares as beginning) - a 14% increase in value
    Income £ 6,595 ( income was re-invested, so there are an additional 551 units) - a 6.3% increase in value

    Does this mean, we should always invest in Accumulations Funds for the best returns?

    Any insight would be welcome


    I would question your figures/interpretation. If you re-invested the INC dividends immediately the only difference would have been dealing costs. According to Trustnet both funds have the same return of about 14% with dividends re-invested since 2014. Arnother possibility - are both funds otherwise the same or could the class (eg A,C,X or whatever) be different?



    But if you were to re-invest immediately there is no point in going for the INC fund.
  • LokoloLokolo Forumite
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    dunstonh wrote: »
    Personally, I always go for income units but the platforms I use dont charge anything for transactions. So, that is not an issue. If yours does, then it an issue for you.

    Out of curiosity, why?
  • AnotherJoeAnotherJoe Forumite
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    Even if you reinvest "immediately" there's still a delay between the dividend being announced and making its way to the ISA company and then the individual account and then reinvestment happening.
  • dunstonhdunstonh Forumite
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    Lokolo wrote: »
    Out of curiosity, why?

    Makes CGT calculations easier on unwrapped holdings.
    Plus, we rebalance the income paid into the funds that are short in sector weightings rather than the same fund.
    Even if you reinvest "immediately" there's still a delay between the dividend being announced and making its way to the ISA company and then the individual account and then reinvestment happening.

    Depends on the level of pre-funding that the platform does. We know that some prefund virtually everything and others wait until settlement and cleared funds
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Thanks to everyone for their responses.

    In particular to dunstonh who - embarrassingly for me - provided the insight into the discrepancy. I overlooked the fact that for a long while I allowed my overall HL charges to be taken from Income. I changed this early last year such that charges are now deducted from the Cash Account - making them much more transparent. Since, most of my holding are Acc, funds it has meant the Woodford Inc fund took the burden of the charges. For completeness, the re-investment charge was a £1 per transaction and the timing wouldn't have explained the large difference.

    Regards to all
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