Accumulation vs distribution units

Many managed funds offer two unit classes representing the same underlying portfolio. Accumulation units automatically reinvest dividends and interest received by the fund — the income compounds inside the unit price, which therefore rises faster than the equivalent distribution-unit price over time. Distribution units pay the income out as cash to unit holders on a fixed cadence (monthly, quarterly, half-yearly) and the unit price reflects capital movement only.

For NZ tax purposes the choice between accumulation and distribution units is largely a cash-flow choice — both unit classes are taxed equivalently at the PIR inside a PIE, since the PIE attributes income to the investor whether or not it is distributed in cash. The total return after PIE tax should be similar across the two classes for the same underlying mandate.

NZ retail PIE funds usually offer one unit class only. Distribution units are more common in income-focused mandates (NZ fixed interest, listed property, equity income); accumulation units predominate in growth and diversified mandates.

Worked example: suppose a fund earns a 4% income yield and 3% capital growth in a year, and both unit classes start at $1.00. The accumulation unit ends the year around $1.07 with no cash paid out; the distribution unit ends around $1.03 and pays roughly 4 cents per unit in cash across its distribution dates. An investor holding 10,000 units received the same total pre-tax return (~$700) either way — one as unit-price growth, the other as ~$300 of price growth plus ~$400 of cash. Reinvesting the distributions manually reconstructs the accumulation outcome, minus any buy/sell spread on the reinvestment.