tjh290633 wrote:That is correct for Accumulation units where the dividends roll up inside the units. It is not correct for income units, where the dividends may be withdrawn as cash or reinvested into whichever share the owner wishes.TJH
in response to my earlier quote from the monevator article
The number of units you own doesn’t change because you were paid a dividend – no more than if one of your shares went up by 20p
I am afraid that I must disagree with you here. This is about Portfolio Unitization not about accumulation or distribution units in a fund.
Take two identical portfolios held in two separate nominee accounts which not only holds the shares but also receives the dividends.
Account one (
accumulation) : Investments £100,000 : dividends received in the month : £1,500 : at end of month the total is
£101,500 and the unit price (if there are 100,000 units) is
1.015.
Account two (
distribution) : Investments £100,000 : dividends received in the month : £1,500 : at end of month the total is
£101,500 and the unit price (if there are 100,000 units) is
1.015.
I assume you are happy with just investing the £1,500 in Portfolio one and taking the new unit value as £1.015 (ignoring costs of course)
But with portfolio two you seem to be saying that you are going to distribute the money and then issue new units when you invest it : Surely this is in fact the sale of some units and the purchase of more when you buy something else? Which I strongly suspect will give us the same answer or, are you simply going to issue £1,500 units at £1 - thereby giving both portfolios the same value?
The purpose of Unitisation - for me anyway - it to capture total return in the unit price and dividends are a very important component of that.
kind regards - BBB