Funds and ETFs are usually available in two versions: accumulating or distributing. What are the differences? We explain differences and whether accumulating and distributing ETFs differ from a tax perspective.

Contents

Accumulating vs. distributing: differences at a glance
What are accumulating funds or ETFs?
What is a distributing fund or ETF?
Accumulating vs. distributing: Are there differences in taxes in Switzerland?

Accumulating vs. distributing ETFs: differences at a glance

Funds and ETFs that invest in bonds or shares generate income such as interest or dividends. What happens to this income depends on whether the fund or ETF is accumulating or distributing.

What may surprise you is that there is no difference in taxes in Switzerland between accumulating and distributing funds. The fund income must be taxed as income for both fund variants. More detailed explanations will follow in the next chapters.

Distributing ETFAccumulating ETF
YieldsIncome is paid out to the investors.Income remains in the fund and is reinvested directly.
TaxesIncome must be taxed as income.Income must be taxed as income.

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What are accumulating funds or ETFs?

An accumulating ETF reinvests interest and dividends received directly back into the investments in which it invests anyway according to the fund prospectus or factsheet. The income is therefore not paid out to you.

You can recognise an accumulating fund by the fact that:

  • the abbreviation “acc” appears in the name,
  • or the term “accumulating” appears in the factsheet.

Here is an example of the name of an accumulating ETF that you can also select in finpension’s asset management: UBS ETF (CH) SPI® ESG (CHF) A-acc.

When is an accumulation fund worthwhile?

An accumulating fund makes particular sense if you are young and are still building up your assets. This is because you automatically benefit from the compound interest effect with accumulating funds and ETFs – and time is an important factor here.

Another advantage: you save effort and don’t have to actively look after reinvestment. And you won’t be tempted to spend the proceeds on something else. Depending on the financial service provider, direct reinvestment can also save transaction costs.

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What is a distributing fund or ETF?

A distributing fund pays out interest and dividends to investors. Income is usually distributed once a year. In the case of American funds, distributions are often made quarterly.

You can recognise a distributing fund by the fact that:

  • the abbreviation “dist” or “dis” appears in the name,
  • or the term “distributing” appears in the factsheet.

Example of the abbreviation in the name: UBS ETF (CH) Gold hedged CHF (CHF) A-dis.

When is a distributing ETF worthwhile?

A distributing fund is particularly useful if you want to use the interest and dividends as passive income. For retired people in particular, this can be a good way to top up their pension.

If you opt for an active investment strategy and take care of the reinvestment yourself, distributing funds may be the better option for you. This way you remain flexible and can decide for yourself in which funds or ETFs you reinvest the income.

Distributing ETF with finpension

With finpension, interest and dividends are paid out on the corresponding portfolio and automatically reinvested through rebalancing. Whether you choose a distributing or accumulating ETF with finpension therefore makes little difference.

By the way: If you don’t want automatic rebalancing, you can deactivate the function in finpension.

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Accumulating vs. distributing: Are there differences in taxes in Switzerland?

In Switzerland, investors must pay tax on interest and dividends as income. It does not matter whether it is an accumulating or distributing fund or ETF. Both are treated equally for tax purposes and you must declare both in your tax return (securities register)!

Depending on the fund domicile, withholding tax (Swiss fund domicile) or withholding tax (foreign fund domicile) is generally payable. You can reclaim the withholding tax in full by making a complete declaration in your tax return. Whether you can reclaim foreign withholding tax depends on whether a double taxation agreement exists.

Particularly in the case of funds domiciled in the USA, it was previously not possible to reclaim foreign withholding taxes in full. finpension wants to change this and has therefore developed a new type of reporting for the flat-rate tax crediting of US dividends.

Good to know: You do not have to pay tax on the interest and dividends you earn in pillar 3a as income. You can find out more about this in the article on tax savings in pillar 3a.

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