Accumulation Unit Value

An accumulation unit value is considered as a sub account of a particular annuity along with a price per share on the accumulation phase. It is the net asset value, after all the income and capital gains that have been involved in the management of the expenses of the sub account, have been removed. It is solely the measure of the value of the units of a separate account.

An accumulation unit value is a reflection of the daily performance underlying the funds plus applicable dividend income minus the daily sub or separate account charge.

What is a separate account?
A separate account is an account created to store pooled money reserved for investment by means of products provided by insurance companies. A separate account has the capacity to invest the money allocated to a variable investment such as in one or more mutual funds. Upon investing in a separate account, you do not purchase shares of such funds but instead, you are purchasing units of the separate account that invests the shares of the funds to a product in the insurance company. Therefore, the accumulation value unit is the exact value of every unit of the separate account that is invested in the funds.

Generally, the separate account gets the accumulation unit value with the use of a complex formula involving the fund dividends, the separate account charge’s product and the value of each share of the underlying funds. When the separate account of the company starts to invest in an underlying fund, the separate account’s AUV will start at an arbitrary price. Usually, the fund has already occurred, prior to inclusion of net asset value and the separate account option, may be different compared to the separate account’s AUV starting point. The variable investment option of a separate account’s AUV is determined every business day. The accumulation units are separately valued in every variable investment option.

Annuity and AUV
Because separate accounts hold the shares, it has the capacity to choose on how to deal with income and dividend distributions from the underlying funds. In terms of tax, the separate account may opt to utilize such distributions to generate higher reserves from the contracts. Thus, there is no direct effect on the AUV of sub-accounts or the number of units remaining from the receipt of distribution in the underlying fund. While the dividend’s distribution decreases the amount of the net asset value through the dividends itself, it has no direct effect to the accumulation unit value. Therefore, while the net asset value method increases the amount of shares owned and decreases the share value, the accumulation unit value method keeps the values in constant as what they are before the dividends were even declared.

Knowing these facts, it is important that individuals should be keen enough on how accumulation unit value is determined. This is to prevent confusion on the investment made. This may be a big concern to individuals who are meticulous enough in finance.