Accumulation Unit – Definition

Cite this article as:"Accumulation Unit – Definition," in The Business Professor, updated September 21, 2019, last accessed October 26, 2020,


Accumulation Unit Definition

An accumulation unit can be defined as a type of investment trust designed to increase the value of a fund over a period of time. The fund experiences growth in the sense that the income generated from the fund are reinvested over an accumulation period.

An accumulation unit is not designed to offer an investor a steady income, rather, or offers growth or increase in fund which is accumulated over a period of time. The dividend income received by an investor is reinvested so that the value of the fund unit can build up. An accumulation unit could be a mutual fund or investment trust.

A Little More on What is an Accumulation Unit

An accumulation unit can mean any of the following;

An accumulation unit is a type of investment trust that offers growth instead of regular income to investors by reinvesting the dividend received on an investment. In unit trust, income of the trust is not paid to investors, rather, it is reinvested into the trust.

In a case or variable annuity, an accumulation unit can be described as the gauge of the value that an individual invests in an annuity plan or account over a specific period of time, usually the accumulation phase. Through the calculation of accumulation units, the accurate value contributed by an annuitant is realized.

Accumulation Unit and Income Unit

Income units are different from accumulation units, the major difference is that while an income unit offers dividends, interests and income to an investor, an accumulation unit increase the value of the fund by reinvesting its dividend and income.

In essence, while income units are designed to create a regular stream of income for an investor, accumulation units are designed to increase the value of funds invested.

Both income units and accumulation units serve unique purposes, it is the duty of an investor to decipher which of the units is best based on the goals of the investor. Investors who opt for income units have the present in mind while those that choose accumulation units do so for future gains. A financial advisor can give professional advice to investors on which unit is suitable and for what purpose.

Reference for “Accumulation unit”

Academic research on “Accumulation Unit”

Performance of UK equity unit trusts, Quigley, G., & Sinquefield, R. A. (2000). Performance of UK equity unit trusts. Journal of Asset Management, 1(1), 72-92. We examine the performance of all UK unit trusts that concentrate their investments in UK equities. This study covers the period from January 1978 to December 1997. We compare the returns of these unit trusts with a three-factor model which takes into account their exposure to market, value and size risk. Once we control for these risk factors, we find that managers, net of expenses, reliably underperform the market. The news is worse for small-company unit trusts. Contrary to the notion that small-company shares offer abundant ‘beat the market’ opportunities, we find that small-company trusts are the worst performers. We also examine performance persistence. Net of expenses, good performance does not reliably persist, but bad performance does.

Unit Linked Assurance and Capital Gains Tax, Seymour, P. A. C. (1971). Unit Linked Assurance and Capital Gains Tax. Delivered to Students Society.

A note on loading charges for variable annuities, Greene, M. R. (1973). A note on loading charges for variable annuities. The Journal of Risk and Insurance, 40(3), 473-478.

Life insurance companies and the equity capital markets, Hart, O. H. (1965). Life insurance companies and the equity capital markets. The Journal of Finance, 20(2), 358-367.

A reevaluation of tax sheltered annuity cost and performance measurement techniques, Todd, J. D. (1978). A reevaluation of tax sheltered annuity cost and performance measurement techniques. Journal of Risk and insurance, 575-592. New complex deferred annuity contracts render most past consumer comparison efforts simplistic and unrealistic. A questionnaire solicited data from thirty different insurers concerning their annuity offerings. Variable annuity prospectuses and fixed annuity policies are analyzed. Performance measurement techniques are then developed and applied to past and current performance. Portfolio beta analysis as well as a risk-free “fee-sensitive efficiency ratio” are suggested as methods for evaluating variable annuities, while “portfolio rate of return” and “effective annual yield” methods are suggested for analyzing fixed annuity performance.

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