The Lemon Fool

Grateful for some help on this one. I hold a number of VCTs some of which have the up-front income tax relief enjoying Dividend Reinvestment Schemes (DRIS).

I intend to continue to invest in these in the years to come. My question is as follows. For the typical DRIS that reinvests dividends at a NAV price/share is it better to do this or take the cash dividend and invest in a new subscription of the same VCT ?

I’m thinking three things come into play.

The price for new subscription shares. Is that also NAV ?
Ongoing marketing and performance fees - are these the same for reinvested dividends and new subscriptions ?
The up front fees and discounts for new subscription shares ?

Bottom line is whether it’s a wash or do these three factors make new subscription shares more expensive than dividend reinvestment taken over the initial purchase of shares and then ongoing costs per the the factors above ?

Thank you in advance.

New subscriptions are rarely at NAV - normally initial charges vary between 1-3% if you invest through a broker such as Wealthclub (I only mention them as that is who I use) that rebates part of their commission. Also you often subscribe but then have to wait several months for the allocation to be made and the NAV might change from the one you expect at the point of investment. This makes DRIS attractive (even more so for the ones that used to be at a discount to NAV but I don't think any of those still exist in that form).

However, the flip side for me is that you end up with a lot more smaller holdings with different 5 year points if you intend to sell/recycle.

For this reason I DRIS those that I intend to make relatively regular subscriptions to anyway as I can bundle the DRIS shares in when I do a larger sale but I don't tend to do so for those I make more sporadic investments into. I might make an exception where there are large extra dvidends with the option to opt in for a single dividend.

I don't think there are any differences in ongoing fees/performance fees.

Quart01 wrote:Grateful for some help on this one. I hold a number of VCTs some of which have the up-front income tax relief enjoying Dividend Reinvestment Schemes (DRIS).

I intend to continue to invest in these in the years to come. My question is as follows. For the typical DRIS that reinvests dividends at a NAV price/share is it better to do this or take the cash dividend and invest in a new subscription of the same VCT ?

I’m thinking three things come into play.

The price for new subscription shares. Is that also NAV ?
Ongoing marketing and performance fees - are these the same for reinvested dividends and new subscriptions ?
The up front fees and discounts for new subscription shares ?

Bottom line is whether it’s a wash or do these three factors make new subscription shares more expensive than dividend reinvestment taken over the initial purchase of shares and then ongoing costs per the the factors above ?

Thank you in advance.

Each VCT has its own arrangements. However most DRIS shares are normally issued at NAV - although previously some VCTs issued them at a small discount to NAV, but I think most of these have now reverted to NAV. Shares purchased from a new subscription are normally priced slightly above NAV - to cover costs of the issue. This issue cost may be reduced if you are an existing holder.

Edit - since I started typing, there has been a more comprehensive response.

I tend to select DRIS for all of my VCT's (My strategy is buy and hold ). I see benefits as
1) About 2% discount on cost of buying new shares
2) It maintains my current distribution of VCT's
3) It allows micromanagment of tax liability as the year end approaches, as you can switch most of the DRiS on and off on-line in the last six months of the year (Northern being a notable exception ( you have to post a form) although here you can elect a proportion of your holding of shares shares for DRIS , which you cannot do for most of the others)

Downside is thatyou do end up with a lot of certificates. I now have over 300 after 18 years of VCT investing!!

Many thanks for the three replies. DRIS it will be