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  • FIRST POST
    • acdjimbo
    • By acdjimbo 16th May 19, 3:31 PM
    • 2Posts
    • 0Thanks
    acdjimbo
    Accumulation vs Income Units - Where am I going wrong?
    • #1
    • 16th May 19, 3:31 PM
    Accumulation vs Income Units - Where am I going wrong? 16th May 19 at 3:31 PM
    Hi Folks
    As a long time lurker on this Forum, I know that there are several posters who really know what they are talking about and am hoping that someone could help me out here.

    I am aware of the difference between Acc and Inc units and that conventional wisdom is that Acc units are superior if looking for growth. However does this hold true for all fund types?

    If I were to buy a Global Equity Income fund, would I not be better off with Inc units (reinvesting the dividends) rather than Acc units? My reasoning for this is that dividends are paid per unit, so the more units held, the more dividend received. If I buy Acc units they would increase to be more valuable units but the quantity would not change limiting the value of dividend payments.

    Would I not achieve more capital growth by owning an increasing no. of lower value units rather than a static no. of higher value units? My instinct is that something is off in my thought process and I would appreciate any input. Thanks
Page 1
    • ColdIron
    • By ColdIron 16th May 19, 3:40 PM
    • 5,199 Posts
    • 7,064 Thanks
    ColdIron
    • #2
    • 16th May 19, 3:40 PM
    • #2
    • 16th May 19, 3:40 PM
    Acc and Inc just determines how the dividends are handled and not how the fund performs. Fees aside, the Acc class and Inc class with dividends reinvested will produce identical total value. Your Acc fund will have fewer higher value units and the Inc fund more lower value units. If you think about it the underlying fund is the same so how could it be any other way
    • Aretnap
    • By Aretnap 16th May 19, 3:56 PM
    • 3,292 Posts
    • 2,886 Thanks
    Aretnap
    • #3
    • 16th May 19, 3:56 PM
    • #3
    • 16th May 19, 3:56 PM
    Your error seems to be assuming that Inc and acc units pay the same dividend *per unit*. They don't - they pay the same dividend per pound of value that you hold in the fund. The acc units will typically have a higher unit price, so each acc unit will 'pay' a higher dividend than an Inc unit, as the acc unit represents a larger number of the underlying shares/bonds/whatever.

    Of course I'm practice the acc units don't actually pay a dividend to you - they immediately reinvest the dividends in more shares etc, which is why after a while the acc units represent more shares, earn more dividends and have a higher value.
    Last edited by Aretnap; 16-05-2019 at 4:18 PM.
    • dunstonh
    • By dunstonh 16th May 19, 4:32 PM
    • 98,281 Posts
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    dunstonh
    • #4
    • 16th May 19, 4:32 PM
    • #4
    • 16th May 19, 4:32 PM
    nd that conventional wisdom is that Acc units are superior if looking for growth.
    Not heard that before.

    The returns are the same assuming income reinvested and no reinvestment charges (most platforms dont charge but a small number do).

    Some platforms will auto-rebalance the distributions into the fund(s) that need it the most to match weightings.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • AnotherJoe
    • By AnotherJoe 16th May 19, 4:48 PM
    • 14,251 Posts
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    AnotherJoe
    • #5
    • 16th May 19, 4:48 PM
    • #5
    • 16th May 19, 4:48 PM
    In the long term, even with reinvestment, acc will provide very slightly higher growth than inc, because a small % of an inc investment will be in cash rather than in the investment.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • acdjimbo
    • By acdjimbo 16th May 19, 5:48 PM
    • 2 Posts
    • 0 Thanks
    acdjimbo
    • #6
    • 16th May 19, 5:48 PM
    • #6
    • 16th May 19, 5:48 PM
    Your error seems to be assuming that Inc and acc units pay the same dividend *per unit*. They don't - they pay the same dividend per pound of value that you hold in the fund. The acc units will typically have a higher unit price, so each acc unit will 'pay' a higher dividend than an Inc unit, as the acc unit represents a larger number of the underlying shares/bonds/whatever.

    Of course I'm practice the acc units don't actually pay a dividend to you - they immediately reinvest the dividends in more shares etc, which is why after a while the acc units represent more shares, earn more dividends and have a higher value.
    Originally posted by Aretnap
    I knew it was something obvious that I was missing. Thanks for spotting it, I can stop going round in circles now.
    • reeac
    • By reeac 16th May 19, 5:59 PM
    • 1,317 Posts
    • 529 Thanks
    reeac
    • #7
    • 16th May 19, 5:59 PM
    • #7
    • 16th May 19, 5:59 PM
    I've always assumed that fees are a bit less with automatic dividend reinvestment than with the investor using the dividend to buy more shares. Also less admin. for the investor, of course.
    • Apodemus
    • By Apodemus 18th May 19, 6:40 AM
    • 1,302 Posts
    • 1,090 Thanks
    Apodemus
    • #8
    • 18th May 19, 6:40 AM
    • #8
    • 18th May 19, 6:40 AM
    Another significant factor is whether the units are held in an unwrapped account or in an ISA or SIPP. If you are doing it all yourself in an unwrapped account, the tax calculations are much simpler with income units.
    • Tom99
    • By Tom99 19th May 19, 7:28 AM
    • 4,047 Posts
    • 2,836 Thanks
    Tom99
    • #9
    • 19th May 19, 7:28 AM
    • #9
    • 19th May 19, 7:28 AM
    Another significant factor is whether the units are held in an unwrapped account or in an ISA or SIPP. If you are doing it all yourself in an unwrapped account, the tax calculations are much simpler with income units.
    Originally posted by Apodemus
    With Acc units all you do is ignore and equalisation payment and add the dividend to both your cost for CGT and your income for income tax.
    Accounting for Inc or Acc is quite straight forward so don't be put off Acc units.
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