Reinvested Distributions

[Gally]

I have an accumulation fund that declares dividends for tax purposes e.g. as a distribution amount and tax paid.

However these cash sums are not paid out but are reinvested in the fund.

Can you please let me know how best to report these transactions in Fund Manager. I cannot report them as reinvested dividends because my shares are not increased and I cannot report them as cash distributions since they are not paid out.


Thanks

[Mark]

Hi Gally,

I don't understand exactly what is happening here. It kind of sounds like you need to record a reinvested dividend, and then a split, getting you back to your original share balance. How is it that you reinvest, but don't end up with more shares? If this is really the case, you can record the reinvestment for some number of shares, and then record a split with a ratio of <Original share balance> for <Share balance after reinvestment>. This way you'll have a record of your distribution, not have any cash flow, and still end up owning the same number of shares as before the distribution.

[Gally]

I don't really understand it either, but this is the fund manager explanation.

"If you purchase accumulation units, the net income available for distribution, if any, is retained within the fund and is reflected in the price of the units"

For example, the Sell and Buy prices of the fund is as follows:

SELL BUY
ACC Fund .8658 .9237
INC Fund .8618 .9191

I was never sure if I should purcahse income distribution units and then recycle the income or accumulation units

Thanks

[Mark]

Hi Gally,

Why are there 2 different funds? What is ACC and INC?

It does sound like the reinvestment/split approach would model what is happening.

[Gally]

The Acc and Inc is the same fund, e.g. Jupiter China ACC GB00B1DTDX49 or Jupiter China INC GB00B1DTDY55 but the prices and hence ISIN is dependent upon whether you hold INC or ACC units in the fund.

UK funds have different mechanisms for distributing income. An income fund may only pay out income and have no mechanism for automatically reivesting paid income. This is recorded by the FM distributed income transaction.

Accumulation funds on the other hand have two possible income re-investment mechanisms.

1) The fund automatically buys new shares in the fund equal to the amout paidout - recorded by the FM reinvested income transation. This is NOT possible for the Jupiter China Fund where the method 2 below is used.

2) By reflecting the accumulated income in the buying/selling price of units in the fund. No FM transaction exists for entering this method of distribution. For example, A gross dividend of 46.08

In all cases UK income Tax is automatically deducted by and paid by the fund on the distributed income for which we receive a tax statement.

In case 2 the net income accumulated would be 41.47 and tax paid of 4.61. What I need to record is the net 41.47 income distribution or the gross 46.08 and preferably but not necessarily the amount of tax paid.

Each fund ACC or INC will have its own ISIN number and you can usually change how income is paid, by switching between ACC and INC units at their current value. i.e. you get more or less units dependent upon which way the switch goes based on the prices at the time. In this respect they are different FM investments, but not really as far as I am concerned a change from holding ACC units to INC units in the same fund is only a pricing and distribution mechanism change. I do need to change ISIN to get the right prices. In FM I would do this by changing the ISIN for the fund and would also change the distribution transaction also.

The issue is how do we reflect these accumulated distributed income transactions for the purposes of capital gains and yield in FM

I hope this clarifies the situation

[Mark]

Hi Gally,

I'm rather confused.. Do you own both of these? Your original question didn't specify a particular fund. Let's go back to your original question, of how to record a distribution you didn't receive, but was declared, and you ended up with the same number of shares. You can do this as I described previously:

1) Record a reinvested distribution of whatever type you want, for the total amount of the declared distribution. You will have to purchase some quantity of shares with this reinvestment, but you will adjust for this in step #2.

2) Record a split with a ratio of <Original desired share balance> for <Share balance after reinvestment>

Recording these 2 events will model what is happening, where a distribution is declared, and put back into the fund. You get no cash flow, and end up with the same number of shares. If this doesn't seem like it will work, please let me know what problem you see with this approach.

[Gally]

This works OK but I don't like the method as it show a dummy record of purchase.

It would be better if I could reinvest a dividend with a zero share purchase.

Use your existing transaction you could still calculate a dist/share but allow zero as the number of new shares purchased.

Thanks

[Mark]

Hi Gally,

Agreed, that would be a cleaner solution here. We may look at adding this flexibility in the future, but for now, a reinvestment requires some number of shares to be re-purchased.

[mcburnjc]

This is not an uncommon situation with ETF's in Canada.
To the extent that an ETF has not distributed the full amount of its net income or capital gains in any year, the difference between such amount and the amount actually distributed by the ETF will be paid as a “reinvested distribution”. Reinvested distributions will be
reinvested automatically in additional Units of the ETF at a price equal to the NAV per
Unit of the ETF and the Units will be immediately consolidated such that the number of outstanding Units following the distribution will equal the number of Units outstanding prior to the distribution.
The "reinvested distribution" is treated as income (capital gain, dividend, etc. as determined by the fund) in the year of the distribution and is added by the unitholder to the cost base of the units.
Treating this in Fund manager as a reinvested distribution followed by an immediate consolidation is correct but distorts the history by changing all the share numbers and prices.
My only solution todate has been to treat it as a normal reinvested dividend inputing the value of the distribution with a share purchase of .000001 share. Since this occurs only annually for any ETF's I own, the error in the share ownership shouldn't be significant in my lifetime.
But it would be nice if there was a way to simply add an amount to the cost base of the fund.

[Mark]

Hi mcburnjc,

Thanks for the feedback. We will consider making this improvement in a future version. I want to clarify though that recording a reinvestment and split does not modify any pricing data or change your share balances before the split. There is an option in Fund Manager to display data "split adjusted", so you can see everything in terms of today's prices. See "View / Split Adjusted". You can turn this option off, and see all your price/share figures un-adjusted for splits.

[mcburnjc]

Thanks Mark.
I'll try that split adjustment view and see if I like doing it the split way better - although then you have to go to the trouble of calculating the ratio.

[Mark]

Hi mcburnjc,

When recording the split, just record it at a ratio of:

<new_shares> for <old_shares>

It doesn't have to be at a ratio of something for 1. So, for example, if you end up with 95.0 shares, and initially had 96.3 shares after the reinvestment, record a split with a ratio of 95.0 for 96.3.