The difference
The companies in an index pay dividends. A distributing fund (often marked Dist or Inc) passes that income on to you as cash. An accumulating fund (often marked Acc) keeps the income in the fund and reinvests it, which raises the value of your holding instead.[1]
| Accumulating | Distributing | |
|---|---|---|
| Dividends | Reinvested inside the fund | Paid out to your account |
| Effort | None | You reinvest the cash yourself, or spend it |
| Suits | Building wealth over many years | Someone who wants a regular income |
Why it matters for compounding
Reinvested dividends earn returns of their own. That is the snowball effect. With a distributing fund you get the same effect only if you reinvest every payment yourself, and each purchase can cost a fee. An accumulating fund does it automatically.
Tax depends on where you live
Reinvesting does not make the income tax-free everywhere. In the United Kingdom, income rolled into accumulation units is taxed in the same way as income that is paid out, unless the fund is held in a tax-sheltered account such as an ISA.[1] In a Swedish ISK the tax is based on the value of the account, so the choice does not change your own tax. Check the rules in your country before you choose.
Common questions
Does an accumulating fund pay less?
No. Both versions of the same fund earn the same return before tax and costs. The only difference is whether the dividends reach your account or stay in the fund.
How do I see which type a fund is?
Look at the fund name and its Key Information Document. Acc means accumulating. Dist, Inc or Distributing means the income is paid out.
Sources & further reading
We cite independent authorities so you can verify everything yourself. Last reviewed 15 Sept 2026.