You will be able to weigh the practical trade-offs between the two share classes for your own situation.
Grace holds a distributing STI fund and a distributing world fund. Every few months a small dividend credit appears in her brokerage account, S$38 one quarter and S$61 the next. She always means to reinvest it but doesn't. When she finally checks, about S$400 of dividends is sitting as cash, some of it for more than a year, earning almost nothing.
Lesson 4.1, "Two ways a fund can handle its dividends", showed that the accumulating and distributing classes of a fund start with the same total return. They differ in what happens afterwards: tax, costs and your own habits.
In many countries this choice is mainly a tax decision. A dividend paid into your account is taxed as income in the year you receive it, while growth inside an accumulating fund may be taxed later or in a different way.
For individuals in Singapore, that argument mostly falls away. IRAS, the Singapore tax authority, generally does not tax individuals on foreign-sourced dividends they receive in Singapore. Dividends from Singapore companies are generally tax-exempt for shareholders. Check the current rules on the IRAS website if your situation is unusual, for example if you invest through a company or a partnership, or you're also taxed in another country.
Withholding tax at source, covered in Lesson 3.3, "Domicile and withholding tax on dividends", still applies. Lesson 4.1 showed that both share classes pay it, so it doesn't separate them. For most Singapore residents, the choice comes down to costs and behaviour.
A distributing class pays dividends out to you on a schedule instead of automatically reinvesting them. When they arrive as cash, keeping that money invested means buying more units yourself, and every purchase carries the costs from Lesson 3.1: commission, the spread, and possibly currency conversion.
Say Grace holds S$12,000 in a distributing fund with a 1.5% yield (made-up figures). That pays about S$180 a year, or S$45 a quarter. If her broker charges S$5 per trade, also a made-up figure, reinvesting each S$45 on its own costs about 11% of it. Nobody should reinvest small dividends one at a time at that price, so she doesn't, and the cash sits and waits.
A better habit is to fold dividends into your next regular purchase. If you already buy monthly, this costs nothing extra. Many investors never build that habit, and the cash sits for months. Idle cash is dividend money left sitting in your brokerage account. For as long as it stays there, it counts as cash in your allocation rather than shares, and it pulls you away from the split you set in module 1.
An accumulating class reinvests dividends inside the fund, on a date the fund chooses. You never see the cash, so you can't forget it, delay it or spend it.
That suits the long build-up phase, when every dividend should go back to work, and most people taking this course are in that phase. Lesson 2.1 of the course How money works, "Simple interest pays on what you put in, compound pays on what you earned", showed that compounding (growth on growth) only happens if the growth stays invested.
Accumulating classes are less common on some exchanges and in some account types. The accumulating class of your chosen fund may also have a slightly different TER, size or spread from the distributing class, so add any of those differences to your comparison sheet.
A distributing class makes sense when you actually want the cash: in retirement, during a career break, or at any time when the portfolio is paying your bills. Payouts arrive on a schedule, and you avoid selling units, with the commission and spread each sale carries, every time you need money.
Before you choose it, be honest about yourself. If the dividends are meant to be reinvested but you know you'll spend them, a distributing fund turns long-term money into spending money a few dollars at a time. Some people like payouts because they feel like a reward for investing. That is a fair reason only if the spending is counted as part of your plan, so if you choose distributing in order to spend, write that spending into your plan.
Grace added up what happened to her dividends last year. She decided to switch her world fund to the accumulating class for new money. She kept her STI fund distributing, because she has decided its payouts will pay for one family trip a year, and she has written that into her plan.
Your own record of what happened to your dividends is the evidence you need before you decide, so start there.
List any dividends you received last year. For each one, note whether you reinvested it, how quickly, and what it cost.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).