Investment instruments such as bonds are said to be "accreting" when the interest earned is reinvested to increase the total yield.

When you make accreting investments, you will receive the cumulative returns at the end of the investment period rather than having yields paid out at regular intervals.

In the case of accreting actively-managed funds and passively managed ETFs with cumulative returns, all returns are reinvested into the funds. Funds which deliver annualized returns, on the other hand, pay out returns on an annual basis.

Investors who opt for funds with cumulative returns are not paid out regular returns. Instead, the value of the fund increases year on year due to compounding interest.

The term “accreting” is widely used in reference to bonds. The coupons (interest) paid out on accrual bonds is not paid out until the bond matures. In the meantime, the interest compounds to increase the final yield.

Although the term is less widely used in reference to stocks, but the same principle applies to stock dividends. In the case of shares with accreting dividends, stock divdends are used to purchase more stock on behalf of the investor instead of being paid out.

See also: Accrual

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