What is the difference between accumulating and distributing ETFs?

Many funds come in two share classes that hold exactly the same investments but treat their income — dividends from stocks, interest from bonds — differently:

An accumulating fund (often marked "Acc") reinvests the income inside the fund. Nothing is paid out; instead, the value of each fund share grows by the amount reinvested.
A distributing fund (often marked "Dist") pays the income out to its investors, typically every quarter or once a year. The price of each share drops by the amount paid on the day it goes ex-dividend.

Before costs and taxes, the total return of both share classes is the same. What differs is where the income ends up.

How the returns compare

For a distributing fund, the total return combines the price change with the distributions received:

R_{\text{dist}} = \frac{P_{\text{end}} - P_{\text{start}} + D}{P_{\text{start}}}

For an accumulating fund, the price already contains the reinvested income:

R_{\text{acc}} = \frac{P_{\text{end}}}{P_{\text{start}}} - 1

A simple illustration

Both share classes start the year at €100 per share. Over the year, the underlying holdings rise 5% in price and pay 2% in dividends. For simplicity, the dividend is paid at the end of the year and costs are ignored:

	Accumulating	Distributing
Price at year end	€107.00	€105.00
Cash paid out per share	€0	€2.00
Total return	7%	7%

The distributing investor has to reinvest the €2 personally to keep compounding at the same pace; the accumulating fund does so automatically, without transaction costs.

How to choose

Accumulating suits building wealth over the long term: reinvestment is automatic and costs nothing, and there is nothing to manage.
Distributing suits investors who want a regular income, for example to live on, without selling shares.
Taxes can differ. Some countries tax the two share classes differently. In Germany, for example, accumulating funds are subject to a small yearly advance tax on part of their value growth, known as the Vorabpauschale, so that reinvested income is not left untaxed indefinitely.

Reading returns correctly

A distributing fund's price chart makes it look worse than the accumulating version of the same fund, because the chart leaves out the income paid. Performance figures for distributing funds should always include the distributions, as a total return.

See these numbers for your own portfolio

Floreo works out every figure on this page from your own holdings — returns, risk, allocation, currencies — and the assistant explains them the way this page does. Import from your broker, or try it on the sample portfolio first.

Start Demo

The demo opens straight away on a sample portfolio — no account needed.