You will be able to choose accumulating or distributing for each fund in your plan and give a reason.
Grace has three holdings on her index map: a world fund, an STI fund and a Singapore government bond fund. She never recorded which share class she would hold in each. Last year her dividends sat in her account as idle cash, so that missing entry has already cost her money. Farhan, the other course example, is in the same position with his two holdings, a shares fund and a bond fund.
This is a practical exercise. Set aside about 20 minutes for it. Open two documents: the index map you made in Lesson 2.4 and the comparison sheet from Lesson 3.5, Build an ETF comparison sheet. Go down the index map and confirm that each line has a fund chosen for it. Farhan's comparison sheet names Fund B for his shares, and working through the same process gave him his bond fund. Next, add two columns to the comparison sheet, headed "Share class" and "Reason".
Choose the fund first and the share class after. A share class is a detail of the fund you have already settled on, so it shouldn't be what decides between two funds. It can affect the fund choice in one case: when your first-choice fund doesn't offer the class you need. If any line still has two or more funds in the running, settle that line before you go on.
Take your holdings one at a time. For each one, decide whether over the next several years you'll keep adding to it and leave its income untouched, or take income out of it. The first kind is a building holding. The second is a drawing holding, where you spend the payouts on a planned purpose, such as retirement income, a career break or another goal written into your plan.
For most people taking this course, nearly every holding is building. You're in your working years, you invest each month, and each dividend should go back into the portfolio.
Lesson 4.2, Tax, costs and the behaviour each one encourages, set out the trade-offs that turn those labels into a share class. A building holding suits accumulating. The fund does the reinvesting, you pay no commission on it, and the cash can't go idle. A drawing holding suits distributing, since the payouts reach you and you don't need to sell anything to get them.
Farhan labels both of his holdings building and writes "accumulating" against each. Grace labels her world fund and her bond fund building. Her STI fund is drawing, because she has decided its payouts will pay for a family trip each year.
Before your choice is final, check that you can actually buy the class you picked. Check three things for each line:
Whether the fund offers that class. Some funds are sold in a single class, and many funds listed on SGX are distributing only. The fund's factsheet lists the classes available. Whether your broker can buy it. If the class trades on an exchange your broker doesn't cover, or covers only with a high commission, you're back to the all-in cost question from Lesson 3.1. Whether the account you plan to use can hold it. The products allowed in SRS, or bought through CPFIS, may be a narrower list. Module 7 deals with both accounts. For now, mark any holding where the account is still undecided.
Farhan's broker can buy the accumulating classes of both his funds, in US dollars, on the exchange he trades on. He notes that his SRS plans in Module 7 may change the answer for part of his shares.
Grace finds that her bond fund is sold only as distributing. It won on her comparison sheet, so she keeps it and writes a rule beside it: each payout is added to her next monthly purchase. That costs no extra commission and solves the idle-cash problem from Lesson 4.2, where money can sit unused for months. If your chosen fund comes only in the other class, you can do what she did: keep the fund and write down the rule you'll follow for its payouts.
Of everything on the sheet, the reason column will help you most. Without a written reason, a choice is easy to undo on impulse. A friend might talk about how nice it is to get dividends each quarter, or a forum thread might insist one class is better. With a written reason, you'd have to argue against your own earlier thinking before you changed anything.
Write each reason on a single line and link it to the building or drawing label. Farhan's reads: "Accumulating; building for 20+ years; the fund reinvests at no cost to him." Grace's STI fund line reads: "Distributing; payouts fund one family trip a year, as written in her plan." Her bond fund line reads: "Distributing, as the only class available; payouts go into the next monthly purchase."
A reason can change as your circumstances do. If a holding moves from building to drawing some years from now, you'll need to make the share class decision again. It's better to revisit it at a review on a set calendar date than to change it on impulse. Module 8 adds the share class decision to the list for the yearly review.
Once the two column headings are in place and every holding has its building or drawing label, you have everything you need for the activity.
Add a share class column to your ETF comparison sheet. For each holding, fill in your choice and a one-line reason.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).