Accumulation Fund

Accumulation funds automatically reinvest dividends and are more tax-efficient. Discover which ones you hold and analyse them with Index Balance.

Definition

An accumulation fund (or capitalisation fund) is one that automatically reinvests the dividends and interest generated by the assets it holds, rather than distributing them to investors. By reinvesting income, the fund's price rises more than that of an equivalent distribution fund, and the investor benefits from the compound interest effect without having to do anything.

For the European index fund investor, accumulation funds are generally more tax-efficient than distribution funds, because reinvested dividends are not taxed until the units are sold. In Spain, Germany or France, this allows the tax on gains to be deferred for years or decades, accumulating capital in the meantime. Most MSCI World ETFs available in Europe have an accumulation version (Acc) that is very popular among long-term investors.

Index Balance lets you distinguish between accumulation and distribution funds in your portfolio and see how reinvestment impacts your real return. Try it free at indexbalance.com.

Practical example

You invest in two identical MSCI World funds: one accumulation (Acc) and one distribution (Dist). Both have a gross return of 9% (7% price + 2% dividend). After 20 years, starting from €10,000: the Acc fund would be worth €56,044 (dividends reinvested tax-free until sale). The Dist fund would be worth less, because each year you had to pay tax on the 2% dividend received. Index Balance calculates this automatically every time you update your portfolio.