The difference between distribution and accumulation for funds or trackers

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If you are considering investing in a fund, which is unlisted, or a tracker, which is listed (sometimes also referred to as an exchange traded fund or ETF), you will have to choose between a distribution option and an accumulation option. The distribution option will pay out a periodical income to you in the form of dividends. The accumulation option will reinvest the income from your dividends and coupons.

It is important to consider the advantages and disadvantages of both options before making your choice. This article explains both options.

What is a distribution fund?

If a regular income is important to you, a distribution fund will be the right choice for you. When you embark on an investment, you need patience to achieve your intended goal of a sizeable yield. A successful long-term investment takes many years of discipline for, but a distribution fund offers you dividends along the way.

Interim dividends from a distribution fund

A distribution fund pays out dividends each year. It is therefore an interesting option if you want a regular or extra income. You can compare it to renting out a property. A property's value will hopefully increase over the years, but in the meantime you receive a rental income. A distribution option does roughly the same thing. Let's say you are retired and on a fairly low statutory pension. In that case, your dividend payouts are an additional source of income.

The meaning of an accumulation fund

Those who prefer to grow their assets in the long term rather than receive regular payments should go for an accumulation option. This means you will benefit from the compounding effect: the income from both dividends and coupons is reinvested for you. This reinvested income also starts to generate a return, so you get a snowball effect.

The difference between the distribution and accumulation options

The distribution option is an attractive choice, because it gives you dividends along the way. One significant disadvantage compared to the accumulation option, however, is taxation. The sale (not the purchase) of conventional unlisted accumulation funds (SICAVs) is subject to a 1.32% stock exchange tax with a 4,000-euro ceiling for each sale. In the case of a distribution option, no stock market tax is due when you buy or sell, but the dividends are subject to 30% withholding tax with no ceiling.

An example will clarify the possible impact: an equity fund with a 3% dividend yield has a net return of 2.1% after deduction of the 30% withholding tax. This means that 0.9% of the fund's value goes to withholding tax each year. If you keep the fund for three years, you will pay a total of 2.7% (3 x 0.9%) in withholding tax.

In case of an accumulation option, you only pay a stock market tax of 1.32% of the investment value when you sell. And that may result in quite a different yield.

We can conclude by saying that an accumulation option is sometimes better for long-term investors. If you prefer to receive interim dividends as an additional source of income, it is worth investigating the distribution option further. Note: when you sell a fund, your capital gains are subject to a 30% withholding tax in some cases, for example if at least 10% of the fund invests in fixed income products such as bonds.

What about trackers?

The situation is different again for trackers (exchange-traded funds or ETFs). The applicable tax rate depends on whether your tracker pays out or reinvests its dividends, what type of tracker it is and where the tracker was registered. You usually pay 0.12% in stock market tax both when you buy and sell, regardless of whether you go for the accumulation or distribution option (see overview of all possibilities). In the case of distribution, you pay 30% withholding tax, just as you would do for conventional funds not traded on the stock exchange.

Distribution trackersCapitalised trackers
Stock market tax on sale and purchase, not registered in the EEA
0.35% on the tracker's value
0.35% on the tracker's value
Stock market tax on sale and purchase, registered in the EEA, but not in Belgium
0.12% on the tracker's value
0.12% on the tracker's value
Stock market tax on sale and purchase, registered in Belgium
0.12% on the tracker's value
1.32% on the tracker's value
Withholding tax on dividends paid out
0% because not applicable

There is a second reason why an accumulation option may be more interesting for both funds and trackers. If you invest in a fund or tracker, you do not invest directly in the underlying shares or bonds. As a rule, the manager of the fund or tracker will also pay a tax at source (i.e. withholding tax) on the shares and/or bonds in the portfolio.

However, it is highly likely that you will also have to pay withholding tax on the dividend you receive. This means you may be taxed twice. However, the manager of the fund or tracker can fill out certain certificates to benefit from a double taxation treaty that will reduce the tax at source. Not all managers do this, though.

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