ACCUMULATION UNIT Meaning and
Definition
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An accumulation unit refers to a unit of measurement that is used to determine the value or growth of an investment fund. This term is typically associated with unit-linked insurance policies and investment funds offered by insurance companies.
When an individual invests in an accumulation unit, they are essentially purchasing units in the investment fund. The value of each unit is determined by the net asset value (NAV) of the fund, which is calculated by dividing the total value of the assets by the number of units in circulation.
The value of accumulation units can fluctuate based on the performance of the underlying assets held by the fund. If the value of the assets increases, the value of the accumulation units will also increase, resulting in potential capital growth for the investor. Conversely, if the value of the assets decreases, the value of the accumulation units will decrease as well, leading to potential capital losses.
Accumulation units are designed for long-term capital appreciation, as the investor aims to accumulate wealth over time through the growth in the value of the units. To achieve this, investors typically reinvest any income generated by the fund back into additional accumulation units, rather than taking it as cash. This reinvestment helps to compound the growth of the investment over time.
Etymology of ACCUMULATION UNIT
The word "accumulation" comes from the Latin word "accumulare", which means "to heap up" or "to gather". It is formed from the prefix "ad-" meaning "to" or "toward" and "cumulare" meaning "to heap" or "to pile up".
The word "unit" comes from the Latin word "unitas", which means "oneness" or "unity". It is derived from the Latin word "unus", meaning "one".
When combined, "accumulation unit" refers to a unit or portion of a collective investment scheme or mutual fund where new contributions and income are reinvested to accumulate and increase the value of the investment.
