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Dividends on accumulation funds
Andrew Bainbridge
Posted: 30 September 2017 09:05:40(UTC)
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Joined: 30/09/2017(UTC)
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I don't understand how the dividend payments are handled with "accumulation" funds.

Take for example, Blackrock iShares 100 UK Equity Index (UK) D Acc. On the dividends tab of this page:
https://www.trustnet.com...k-equity-index-uk-d-acc

it claims the fund paid a dividend of 2.1% on 28 Feb 2017. I held some of the fund then but saw no evidence of the dividend. I understand that an accumulation fund automatically re-invests the dividend but I can't see any sign of that. The fund price continued to track the FTSE 100 seamlessly and I didn't suddenly find myself with a larger quantity of shares/units (what's the correct term?).

Can someone explain what happened or how this is generally supposed to work?
Tim D
Posted: 03 October 2017 13:47:25(UTC)
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Joined: 07/06/2017(UTC)
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Andrew Bainbridge;51561 wrote:
I don't understand how the dividend payments are handled with "accumulation" funds.

Take for example, Blackrock iShares 100 UK Equity Index (UK) D Acc. On the dividends tab of this page:
https://www.trustnet.com...k-equity-index-uk-d-acc

it claims the fund paid a dividend of 2.1% on 28 Feb 2017. I held some of the fund then but saw no evidence of the dividend. I understand that an accumulation fund automatically re-invests the dividend but I can't see any sign of that. The fund price continued to track the FTSE 100 seamlessly and I didn't suddenly find myself with a larger quantity of shares/units (what's the correct term?).

Can someone explain what happened or how this is generally supposed to work?


The dividend is accumulated into the "Acc" units price. If you had one "Inc" unit worth £1 paying a 2% dividend, after the dividend was paid you'd still have one Inc unit worth £1 plus 2p cash (which you could reinvest to have 1.02 units of Inc unit worth £1 so total value £1.02). If you had one Acc unit worth £1, after the dividend was paid you'd still have one unit but that unit ought to be worth £1.02. This divergence is why the Inc and Acc units have different unit prices (although I assume most funds launch with both types initially having the same value).

This is a 10-year plot of my UK index (FTSEAllShare) tracker of choice, for both the Inc and Acc units *and* the index itself, *with* the Inc units reinvesting (*and* the index shown "total return", as if it was reinvesting it's natural yield in itself). As should be expected, all the lines are basically on top of each other:

allsharereinvest

But if the income was just taken out of the system by the investor and not reinvested, then you get this:

withoutreinvest

The Acc units perform as before because they have no income to be diverted elsewhere; it's rolled up inside the fund. But the Inc units (and the index) didn't benefit from the compounding effect of such reinvestment in this chart.

Personally I'm glad I bought and held Acc units in my youth and just let the reinvestment compounding get on with doing its job. But in the last few years I've migrated a lot of them to Inc units so I can use the revenue stream to grow other holdings in other asset classes rather than buying yet more equities.
5 users thanked Tim D for this post.
dlp6666 on 03/10/2017(UTC), Guest on 03/10/2017(UTC), Andrew Bainbridge on 03/10/2017(UTC), Mr Helpful on 04/10/2017(UTC), chubby bunny on 04/10/2017(UTC)
Andrew Bainbridge
Posted: 04 October 2017 07:05:38(UTC)
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Joined: 30/09/2017(UTC)
Posts: 2

Thanks: 1 times
That makes sense now. The main thing I hadn't realised was that on the chart that compares the FTSE against the fund, the default shows the FTSE growth with reinvestment. I'd never clicked on the "Chart basis" button!

Many thanks.
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