Income Funds

With income funds, income is paid out to us as cash. This can provide us with an income stream, or the cash can be reinvested to buy additional funds.

The best time to set one of these funds up is when the rates are low and exit when they start to rise, so would require you to keep an eye on the rates and make a judgement on when you believe is the best time to set up.

If you need income/cash now, then income funds are often the better choice as they can be used by people who are retired etc and looking to increase their pension payments.

Accumulation Funds

With accumulation funds income is retained within the fund and reinvested, increasing the price of it. Accumulation funds do not distribute dividends or interest to holders, it re-invests it into further assets which helps to grow it over time. Majority of the time if we wish to reinvest the income, accumulation funds offer a more convenient and cost-effective way of doing so.

Also found out that if someone holds their funds in a SIPP or an ISA, the income will not be taxed, but if they hold the funds in a Dealing account, it will be taxable.

If you do not need income/cash right now, then accumulation funds would be a better choice as they benefit from compounding. “Compounding is the ability of an asset to generate earnings which, when reinvested or kept invested in the primary asset, will generate additional earnings.”

*Overall, the sooner you start to invest in yourself and your future the quicker you learn (you will make mistakes everyone does) but the aim is to reach financial freedom as soon as you can*