Question
I am looking at various share funds, and notice that they frequently have several variations of the same fund listed as xyz A, xyz B etc. The composition of these funds appears to be identical, although their performance and price are not. What's going on here? Why the duplication, and the different results?
Also, many funds are listed as accumulation and/or income funds (xyz A Acc; or xyz A Inc), but it seems that there is still the option to re-invest any income back into the funds. So why the difference?Answer
When a fund appears with different letters after its name it's because there are several versions (called unit or share 'classes') of the fund.
The investments held in the fund are normally identical (I'll cover the exception below) and all that changes between different classes is charges.
Fund groups do this if they want to vary charges depending on the type of investor buying units.
For example, most funds will have a 'retail' version for private investors (like you and I) that includes sales commission and fund supermarket fees within its charges, e.g. 3% initial and 1.5% annual charges. The retail class is often denoted by an 'R', but it could easily be 'A', 'B' or whatever else the fund group decides to use.
Funds usually have an institutional class too (aimed at large professional investors like pension and fund of fund managers) which excludes commissions and platform fees, e.g. no initial and 0.75% annual charges. Institutional units might be denoted with an 'I'.
Some funds might also have a different performance fee version, which again will have a letter after its name to reflect this.
So any difference in performance between classes should be solely due to charges, with the institutional version performing better than the retail version.
The exception I referred to above (when fund investments do vary) relates to some investment trusts (including venture capital trusts) which often use a 'C' class when raising extra money for their fund. In this instance the C class will initially contain cash which is then invested before the units are merged into the main fund at a later date. So for a period of time (usually up to several months) the investments held may be different from the main fund.
How do you know what each letter means? Aside from 'R' and 'I' there is no standard use of letters, so I'm afraid it's a case of checking with the fund group.
Accumulation funds don't offer an income re-investment option as the unit price automatically increases to reflect any income that would otherwise have been paid out, whereas income units do usually offer this option. Is there any tangible difference from an investor's point of view? No, unless the fund group levies an initial charge when re-investing income - most don't these days but it can happen.
While it might seem a bit redundant when a fund has both income units (that allow income re-investment) and accumulation units, that's just the way it is. Income producing funds need to offer an income unit option and it's standard practice to allow re-investment. Accumulation units are usually offered too as some investors simply prefer this option (I suppose it keeps things simpler as the number of units owned doesn't change).
Hope all this makes sense.
I am looking at various share funds, and notice that they frequently have several variations of the same fund listed as xyz A, xyz B etc. The composition of these funds appears to be identical, although their performance and price are not. What's going on here? Why the duplication, and the different results?
Also, many funds are listed as accumulation and/or income funds (xyz A Acc; or xyz A Inc), but it seems that there is still the option to re-invest any income back into the funds. So why the difference?Answer
When a fund appears with different letters after its name it's because there are several versions (called unit or share 'classes') of the fund.
The investments held in the fund are normally identical (I'll cover the exception below) and all that changes between different classes is charges.
Fund groups do this if they want to vary charges depending on the type of investor buying units.
For example, most funds will have a 'retail' version for private investors (like you and I) that includes sales commission and fund supermarket fees within its charges, e.g. 3% initial and 1.5% annual charges. The retail class is often denoted by an 'R', but it could easily be 'A', 'B' or whatever else the fund group decides to use.
Funds usually have an institutional class too (aimed at large professional investors like pension and fund of fund managers) which excludes commissions and platform fees, e.g. no initial and 0.75% annual charges. Institutional units might be denoted with an 'I'.
Some funds might also have a different performance fee version, which again will have a letter after its name to reflect this.
So any difference in performance between classes should be solely due to charges, with the institutional version performing better than the retail version.
The exception I referred to above (when fund investments do vary) relates to some investment trusts (including venture capital trusts) which often use a 'C' class when raising extra money for their fund. In this instance the C class will initially contain cash which is then invested before the units are merged into the main fund at a later date. So for a period of time (usually up to several months) the investments held may be different from the main fund.
How do you know what each letter means? Aside from 'R' and 'I' there is no standard use of letters, so I'm afraid it's a case of checking with the fund group.
Accumulation funds don't offer an income re-investment option as the unit price automatically increases to reflect any income that would otherwise have been paid out, whereas income units do usually offer this option. Is there any tangible difference from an investor's point of view? No, unless the fund group levies an initial charge when re-investing income - most don't these days but it can happen.
While it might seem a bit redundant when a fund has both income units (that allow income re-investment) and accumulation units, that's just the way it is. Income producing funds need to offer an income unit option and it's standard practice to allow re-investment. Accumulation units are usually offered too as some investors simply prefer this option (I suppose it keeps things simpler as the number of units owned doesn't change).
Hope all this makes sense.
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