I am planning on shopping for shares in numerous ETF’s so I am making an attempt to get an understanding of their variations. In all probability the obvious distinction is whether or not an ETF is accumulating or distributing.
I get the essential thought, a distributing fund pays dividends to the share holders who can then optionally purchase extra shares or spend the cash elsewhere. An accumulating fund will reinvest the cash routinely which will increase the NAV of the fund.
I’ve in all probability learn each web page google has turned about this and I am nonetheless confused. I perceive the NAV is outlined as the web asset worth / excellent shares however I am unsure how this worth modifications and it is relationship to the present worth of the fund inventory.
I feel I’ve discovered accumulating funds: the dividend earnings is used to buy extra underlying shares however the variety of fund shares stays the identical so the general NAV goes up.
I’ve learn that the NAV of a distributing fund drops after they distribute, I am not 100% certain I perceive this. My greatest guess is that as a result of the dividend cost is counted in the direction of the asset worth when that cash is payed out the asset worth drops so the NAV drops.
Now we come to share worth: VUSA is at present buying and selling at 65.77, VUAG at 63.91. The one materials distinction between these two ETF’s (that I can see) is VUSA is distributing and VUAG is accumulating. Is it simply coincidence they’re practically the identical worth? I, maybe naively, would have anticipated the worth of VUAG to be greater since reinvestment of the dividends causes the fund to personal extra underlying inventory which absolutely would push up the worth?
If anybody is questioning, I am investing by way of a tax free financial savings scheme so VUAG makes extra sense. I’ve beforehand invested just a little in VUSA which I am going to in all probability change to VUAG as soon as I perceive this! Many thanks.