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Reinvestment Costs and How to Avoid Them
Key takeaways
- Distributing ETFs pay dividends to your account — reinvesting requires a new order and new fees.
- Accumulating ETFs automatically reinvest dividends inside the fund at no charge and without a taxable event.
- In the Czech Republic, dividends from distributing ETFs are taxed at 15% regardless of holding period.
- For long-term investors, an accumulating ETF is usually more advantageous due to automation and tax efficiency.
A reinvestment cost arises when a distributing ETF pays out a dividend and you have to reinvest it manually — each time you pay a broker commission, a forex fee, and spend time doing it.
Distributing vs. accumulating ETFs
This is the fundamental distinction that determines how reinvestment works:
- Distributing ETFs pay dividends to your account (typically quarterly or semi-annually). To reinvest, you must place a new buy order — and pay the associated costs.
- Accumulating ETFs automatically reinvest dividends inside the fund. Nothing arrives in your account; the fund simply grows faster. No commission, no forex fee, no action required.
A detailed comparison of both variants is available in the article accumulating vs. distributing ETFs.
Tax perspective on reinvestment
In the Czech Republic, dividends from distributing ETFs are taxed at 15% income tax regardless of how long you have held the fund — the holding period test does not apply to dividends. An accumulating ETF pays no dividend, so no taxable event arises. Tax is only paid when you sell units and only if the three-year holding period test has not been met.
When a distributing ETF makes sense
For investors who want regular income from their investments — such as in retirement or when drawing down a portfolio — a distributing variant is natural. In that case, you consume the dividends rather than reinvesting them. Otherwise, for the wealth-building phase, an accumulating variant is almost always more efficient.
How to avoid reinvestment costs
Simply: choose the accumulating variant of the ETF (look for "Acc" or "C" in the fund name, depending on the provider). If you invest using our ETF comparison tool, filter by distribution type. For savings plans, this applies especially — automation works best with an accumulating fund, where you don't need to worry about reinvesting payouts.
FAQ
What are reinvestment costs?
Costs incurred when manually entering a new buy order after receiving a dividend from a distributing ETF. These include a broker commission, forex fee, and time. With accumulating ETFs, reinvestment happens automatically at no such cost.
Why is an accumulating ETF more tax-efficient in the Czech Republic?
Dividends from distributing ETFs are taxed at 15% regardless of holding period. An accumulating ETF pays no dividends, so no taxable event arises. Tax is paid only when you sell units, and the holding period test (3 years) can exempt the gains.
How do I know an ETF is accumulating?
Look for "Acc" (accumulating) or "C" (capitalization) in the fund name — it depends on the provider. A distributing variant has "Dist" or "D". This information is also in the KID document.
Should I switch from a distributing to an accumulating ETF?
Switching means selling and buying back — a taxable event and a reset of the holding period. If you've held the distributing fund for a short time, switching may be worthwhile. Positions held for a long time are better left as they are; direct new investments from the start into accumulating variants.