I am confused about the funds with the suffix ‘Acc’

19 May 2023

Question by Lyn

I am pretty much a novice investor trying to learn as much as I can. I hold several funds in a stocks and shares ISA with a platform which gets good ratings for value, customer service, etc. I understand income funds ie the dividends appear in the cash area of my account and I can choose to reinvest or reserve to cover costs. I am confused about the funds with the suffix ‘Ann’. I receive dividend notifications but the dividends seems to be absorbed into the funds without buying any further units. Can you explain please - I did ask my platform but the answer left me even more confused.


Answered by Holly Mackay

Welcome to the dreaded three letter acronym of finance! Funds come in 2 flavours when it comes to how they deal with any income your investments pay. You have ‘Inc’ options and ‘Acc’ options. I think your ‘Ann’ is probably ‘Acc’ if you squint hard enough! 'Acc' stands for 'accumulation' and 'Inc' for 'income'.

Imagine your investment fund is a bag of Maltesers. And every 6 months they give you 2 more Maltesers. The Acc version would see these 2 extra Maltesers put into the bag. The Inc version would see you eat them!

Let’s say a fund has 100 shares in it. And one of them is BP. BP pays out nice dividends regularly. Your fund manager can either pool all these dividends from the 100 companies and use the pool to buy more units in your fund for you - accumulation. Or pay you the income out as cash. Income.

If you hold Accumulation units, go into the Transaction History bit of your online account. If you have a choice, it will show in the Capital Account tab. You should see an entry – usually every 6 months – which shows three numbers. The unit price of the fund (normally shown in pence). The number of units your income will purchase. And the value of the total reinvestment which will be the unit price x the number of units. This is where you can see the ledger as it were; the record of your growing holdings.

People get confused about which to pick. If you are generally saving up and don’t need your investments to produce an income, then the accumulation option will see that ‘snowman’ get bigger quicker. If you are after some money to be paid out to supplement your income, then obviously the Inc units are the better option.

Hope this helps.

Holly


Answered by

Holly Mackay

Founder and CEO of Boring Money

I’ve worked in investment markets for over 20 years. I started out at Merrill Lynch Investment Management and worked at a few big names before setting up my first business in 2008.