Keeping Investment in Income Units Rather Than Accumulation Ones

Options
soti84
soti84 Posts: 12 Forumite
in Savings & investments
Hello Guys,
I just would like to know what your opinion is on investing in income units as opposed to accumulation ones for a particular fund.
Considering that I reinvest my income anyway, are there any advantages for me to invest in accumulation units? Most of the growth funds I hold produce a negligible dividend but hopefully by the time I retire (which is about 25 years down the line, if I am still alive) I would have about a couple of hundred thousand grand accumulated and the income from that in conjunction with my pension would allow us to get by comfortably.
I just want to avoid the hefty fees platforms charge for conversion.
Also, I would like to know what is the commonly accepted approach in this respect, when planning for retirement? Do you normally invest in the accumulation units of growth funds and then upon retirement sell these out and purchase pure income funds?

Thank you.
«1

Comments

  • ColdIron
    ColdIron Posts: 9,116 Forumite
    First Anniversary Name Dropper Photogenic First Post
    Options
    Are these funds in a tax privileged account such as an ISA/SIPP or unwrapped?
  • soti84
    soti84 Posts: 12 Forumite
    Options
    Hello ColdIron,

    Yes, the funds are in an ISA with HL.
  • ColdIron
    ColdIron Posts: 9,116 Forumite
    First Anniversary Name Dropper Photogenic First Post
    Options
    Inc units are preferable when unwrapped as it can simplify tax reporting but within an ISA you don't have to worry about this so Acc units are preferred by many. Acc units save you the task of manual reinvestment. Most platforms have minimum value for fund purchases, say £100 per fund, but if the yield from your funds is low you could have to wait a while until you have enough. You have the option of automatic reinvestment although many platforms, including HL, make a charge for this so Acc units may be a little cheaper. Some people like Inc units as it allows them to perform a sort of ongoing rebalancing but with low yielding funds there may not be enough to overcome the disparities that can arise
    I just want to avoid the hefty fees platforms charge for conversion.
    HL don't charge for selling one fund and purchasing another
  • masonic
    masonic Posts: 23,371 Forumite
    Photogenic Name Dropper First Post First Anniversary
    Options
    soti84 wrote: »
    hopefully by the time I retire (which is about 25 years down the line, if I am still alive) I would have about a couple of hundred thousand grand accumulated and the income from that in conjunction with my pension would allow us to get by comfortably.
    Well a couple of hundred thousand grand should see you living quite comfortably ;)
    Do you normally invest in the accumulation units of growth funds and then upon retirement sell these out and purchase pure income funds?
    It is quite normal to make changes to your investments over time as your circumstances change. So there will be plenty of opportunity to switch to income when it is needed. Before then, it's best to do what works best for you now, which in this case would probably going for Acc units.
  • eskbanker
    eskbanker Posts: 31,213 Forumite
    First Anniversary Name Dropper Photogenic First Post
    Options
    masonic wrote: »
    Well a couple of hundred thousand grand should see you living quite comfortably ;)
    Unless it was all spent on Neymar....
  • dunstonh
    dunstonh Posts: 116,463 Forumite
    Name Dropper First Anniversary First Post Combo Breaker
    Options
    I just would like to know what your opinion is on investing in income units as opposed to accumulation ones for a particular fund.

    I always go income units where possible. Doesnt matter what stage.
    I just want to avoid the hefty fees platforms charge for conversion.

    Most platforms do not offer conversion and would need to do it as a fund switch. However, I am not aware of many that charge anything and those that do tend to be very small (as they often have a lower annual charge).
    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.
  • colesy
    colesy Posts: 72 Forumite
    First Anniversary First Post
    Options
    dunstonh wrote: »
    I always go income units where possible. Doesnt matter what stage.

    Can I ask why that is? My IFA made a similar remark a few years ago which I didn’t follow up on at the time.
  • dunstonh
    dunstonh Posts: 116,463 Forumite
    Name Dropper First Anniversary First Post Combo Breaker
    Options
    colesy wrote: »
    Can I ask why that is? My IFA made a similar remark a few years ago which I didn’t follow up on at the time.

    Its easier for CGT purposes. Not all platforms retain the data or make available the data on acc units history and notional distributions.

    Rebalancing portfolios allows excess cash to be distributed to the sectors that need incrementing rather than back into the sector they came from.

    and finally, sustainability. No need to worry about moving between acc and inc when circumstances change. There may be a time you must have inc but there is never a time you must have acc.

    Just convenience really.
    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.
  • darkidoe
    darkidoe Posts: 1,125 Forumite
    First Anniversary Name Dropper First Post
    Options
    Accumulation units if you don't want the hassle for reinvestment and would like to be more passive in your investments. You probably can avoid further transaction costs as well.

    I like income units for the stream of dividends you receive and having to reinvest it myself. Gives me a sense of responsibility. In terms of retirement as well, you will get a stream of natural income from the investments rather than having to sell investments.

    Save 12K in 2020 # 38 £0/£20,000
  • Bravepants
    Bravepants Posts: 1,503 Forumite
    First Anniversary First Post Name Dropper Photogenic
    Options
    I have started to "experiment" with monthly income funds, not with my entire portfolio but a portion of it, just to see how effective and stable they are in providing income compared to capital volatility. I'm with darkidoe in that I would rather try to avoid selling units in retirement (hopefully only a few years off) and I would rather experiment while I'm working than after retirement.
    If you want to be rich, live like you're poor; if you want to be poor, live like you're rich.
This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.4K Banking & Borrowing
  • 250.2K Reduce Debt & Boost Income
  • 449.8K Spending & Discounts
  • 235.5K Work, Benefits & Business
  • 608.4K Mortgages, Homes & Bills
  • 173.2K Life & Family
  • 248.1K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards