Question
Merry Christmas and a Happy New Year. Thank you for your excellent answers.
Q1 When I'm buying funds on a supermarket site, I'm ok when confronted by the options R/retail and I/inst, though I occasionally wonder what would happen if as private investor I chose I/Inst. But when I'm confronted with the options A, B, and X - or more particularly, just B and X - I'm lost. Please help.
Q2 Income funds with holdings in many different dividend paying companies are I assume receiving dividends very frequently. When do these dividends get fed back into the fund if the fund is (a) an Acc, or (b) an Inc and pays out (as cash or by reinvestment) only once or twice a year?Answer
Thanks, Happy New Year to you too.
Re: your first question, yes, fund unit classes are confusing and it's likely to get worse.
The different letters after a fund, e.g. A, B, I, R, X etc refer to different classes of unit in the same fund. They all invest in the same fund, but usually have different charges and, sometimes, minimum investment limits. Unfortunately there's no standard, although 'I' usually means institutional units (low cost, high minimum investment pitched at professional investors), so without referring to the fund provider in question deciphering what they mean is nigh on impossible.
In the past this wasn't much of a problem, as there'd only be one unit class available for private investors. But times are changing. Following the Retail Distribution Review most fund providers also offer unit classes without commission and some have also started to offer classes without fund platform fees built in too (which is effectively the same as institutional, but without the high minimum investment). Before long, we could see funds having half a dozen or more unit classes, with little rhyme or reason as to what they mean.
If you see an intuitional fund available on a platform then you should be able to buy it if you the platform lets you - the minimum investment level is the platform's problem, not yours. Platforms sometimes offer several unit classes for a particular fund which seems a bit dumb, they should just offer the cheapest. However, it can sometimes help if you want to re-register your funds from one platform to another, as this is only possible if the same unit classes are available on both.
Anyway, when buying funds on a platform and more than one unit class is available, check the charges for each, net of any commission rebates (which still apply to pre 31 December 2012 purchases and new execution-only purchases) and opt for the cheapest.
As for dividends, when a fund receives them it puts them in the bank then pays out the balance to fund holders on set dates (e.g. quarterly, half-yearly). The fund price will rise meanwhile to reflect the dividends it's holding, as the bank balance is included in the fund's assets. When a fund hits its ex-dividend date, that is the date from which new purchases don't receive the next dividend payout (typically a couple of months before the dividend is paid out), you'd expect the price of income ('Inc') units to fall by the amount of the dividend to be paid out as new owners won't receive it. Accumulation units receive dividends via an automatic increase in unit price (dividends are effectively used to buy more shares per unit owned), so the ex-dividend should have little impact on price.
Merry Christmas and a Happy New Year. Thank you for your excellent answers.
Q1 When I'm buying funds on a supermarket site, I'm ok when confronted by the options R/retail and I/inst, though I occasionally wonder what would happen if as private investor I chose I/Inst. But when I'm confronted with the options A, B, and X - or more particularly, just B and X - I'm lost. Please help.
Q2 Income funds with holdings in many different dividend paying companies are I assume receiving dividends very frequently. When do these dividends get fed back into the fund if the fund is (a) an Acc, or (b) an Inc and pays out (as cash or by reinvestment) only once or twice a year?Answer
Thanks, Happy New Year to you too.
Re: your first question, yes, fund unit classes are confusing and it's likely to get worse.
The different letters after a fund, e.g. A, B, I, R, X etc refer to different classes of unit in the same fund. They all invest in the same fund, but usually have different charges and, sometimes, minimum investment limits. Unfortunately there's no standard, although 'I' usually means institutional units (low cost, high minimum investment pitched at professional investors), so without referring to the fund provider in question deciphering what they mean is nigh on impossible.
In the past this wasn't much of a problem, as there'd only be one unit class available for private investors. But times are changing. Following the Retail Distribution Review most fund providers also offer unit classes without commission and some have also started to offer classes without fund platform fees built in too (which is effectively the same as institutional, but without the high minimum investment). Before long, we could see funds having half a dozen or more unit classes, with little rhyme or reason as to what they mean.
If you see an intuitional fund available on a platform then you should be able to buy it if you the platform lets you - the minimum investment level is the platform's problem, not yours. Platforms sometimes offer several unit classes for a particular fund which seems a bit dumb, they should just offer the cheapest. However, it can sometimes help if you want to re-register your funds from one platform to another, as this is only possible if the same unit classes are available on both.
Anyway, when buying funds on a platform and more than one unit class is available, check the charges for each, net of any commission rebates (which still apply to pre 31 December 2012 purchases and new execution-only purchases) and opt for the cheapest.
As for dividends, when a fund receives them it puts them in the bank then pays out the balance to fund holders on set dates (e.g. quarterly, half-yearly). The fund price will rise meanwhile to reflect the dividends it's holding, as the bank balance is included in the fund's assets. When a fund hits its ex-dividend date, that is the date from which new purchases don't receive the next dividend payout (typically a couple of months before the dividend is paid out), you'd expect the price of income ('Inc') units to fall by the amount of the dividend to be paid out as new owners won't receive it. Accumulation units receive dividends via an automatic increase in unit price (dividends are effectively used to buy more shares per unit owned), so the ex-dividend should have little impact on price.
Read this Q and A at http://www.candidmoney.com/askjustin/786/difference-between-fund-unit-classes
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