InvestorQ : Can you share the difference between income and accumulation units in mutual funds?
Dilmini Mercia made post

Can you share the difference between income and accumulation units in mutual funds?

Dhwani Mehta answered.
3 years ago
Income funds, as the name suggests, invest in high-income generating securities which are ideal to supplement your current income. Income funds are debt mutual funds that invest in a combination of government securities, certificates of deposits, corporate bonds and money market instruments.

Income Funds mainly focus on generating regular income for investors. Income fund emphasizes on current income, either on a monthly or quarterly basis. Income funds are best suited for those investors who wish to have a regular and stable income. Conservative investors who want to earn better returns than their conventional havens may think of income funds.
An accumulation unit fund is designed to offer you growth in the fund rather than income, so any income generated will be reinvested within the fund, raising the value of the investment. In accumulation units fund your profits are automatically reinvested to buy more shares in the fund. Your value of the investment in the fund grows if the fund performs well.

In the accumulation unit, fund profit is reinvested back into the fund by increasing the unit price, or by issuing more units equivalent to profit amount to investors. Accumulation unit funds are designed to increase the value of the fund. Generally, for investors who wish to reinvest income, accumulation units offer a more convenient and cost-effective way of doing so. 
Retirees may invest in income funds to get extra money apart from their regular pension. Income funds in comparison to accumulation units are often considered lower risk than funds that prioritize capital gains.

The overall performance of the fund is the same in both funds. In accumulation, the income generated is reinvested by the fund manager, while in the income funds the income is paid to the investors. When it comes to deciding whether income fund or accumulation unit funds are the better choices for you, the investors shall decide it based on your short term and long term goals.