You will be able to weigh the practical trade-offs between the two share classes for your situation.
Grace holds a distributing STI fund and a distributing world fund. Every few months, a small credit appears in her brokerage account: S$38 one quarter, S$61 the next. She always means to reinvest it. When she finally looks, she has about S$400 of dividends 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 two share classes start with the same total return. This lesson is about what happens after that, in tax, in costs and in your own habits, because that is where they come apart.
In many countries, the choice between accumulating and distributing is mostly about tax. 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 differently.
For an individual in Singapore, that argument mostly falls away. IRAS generally does not tax individuals on foreign-sourced dividends they receive in Singapore, and dividends from Singapore companies are generally tax-exempt in the hands of shareholders too. Check the current rules on the IRAS website, especially if your situation is unusual, for example if you invest through a company or a partnership, or are taxed in another country as well.
What still matters is the withholding tax at source from lesson 3.3, Domicile and withholding tax on dividends, and as lesson 4.1 showed, both share classes pay it. So for most Singapore residents, tax does not decide this choice. Costs and behaviour do.
When a distributing fund pays you, the money arrives as cash. To keep it invested, you have to buy more units, and every purchase carries the costs from lesson 3.1: commission, the spread and possibly currency conversion.
Made-up example: Grace holds S$12,000 in a distributing fund with a made-up yield of 1.5%. That is about S$180 a year, or S$45 a quarter. If her broker charges a made-up S$5 per trade, reinvesting each S$45 on its own costs her about 11% of the amount. She will not do that, and nobody should.
So the cash waits. Some investors fold their dividends into their next regular purchase, which costs nothing extra if they buy monthly anyway, and that is a perfectly good habit. Many never build the habit, though, and the cash sits for months. Money sitting idle in a brokerage account is, for that time, cash in your allocation rather than shares, which quietly pulls you away from the split you set in module 1.
An accumulating class does the reinvestment for you, inside the fund, at no commission to you and on the day the fund decides. You never see the cash, so you cannot forget it, delay it or spend it.
That suits the long build-up phase most readers of this course are in, when every dividend should go back to work. Lesson 2.1 of How money works, Simple interest pays on what you put in, compound pays on what you earned, showed why: growth on growth only happens if the growth stays invested.
There are a few practical limits. Accumulating classes are less common on some exchanges and in some account types, and an accumulating class of the fund you chose may have a slightly different TER, size or spread from the distributing one. Those all go back on your comparison sheet.
A distributing class makes sense when you actually want the cash: in retirement, during a career break, or for any period when the portfolio is paying your bills. Then the payouts arrive on a schedule, and you avoid selling units, with commission and spread, each time you need money.
The condition is honesty about yourself. If the dividends are meant for reinvesting and you know you will spend them, a distributing fund turns your long-term money into spending money a few dollars at a time. Some people like the payout because it feels like a reward for investing. That feeling is a fair reason only if you count the spending as part of your plan.
Grace adds up what happened to her dividends last year and decides her world fund should switch to the accumulating class for new money. Her STI fund stays distributing, because she has decided its payouts will cover one family trip a year and has written that into her plan. Your own record of what happened to your dividends is the evidence you need before deciding, so start there.
List the dividends you received last year, if any, and note how many you reinvested, how fast and at what cost.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).