As to which is better, that's swings and roundabouts.
I disagree. If one invests in income units, one expects a steady (and ideally rising) annual income - and income pretty much independent of the capital value of the underlying shares. This is what the underlying investments are generating. With this distributed one can then plan on how lavish a lifestyle one can afford. With unpredictable income one can't plan. Furthermore, by returning capital (which is taxed as income) the fund manager is eroding future income potential (the fund holds fewer shares from which to receive income). In my opinion the Thai model is seriously flawed, and the UK model superior.
(UK investment trusts legally only have to distribute 85% of income, but the principle is similar.)
You can disagree but that's only one perspective
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If you invest in UK company shares, you know that dividends are variable and not guaranteed. You may invest and hope a dividend continues to be paid on shares but it may not for a myriad of reasons, or may be cut, increased etc. Thai funds are just collective investments that have these type of risks.
Investors invest for a variety of reasons. There are many people that invest in income units who are not seeking annual income. In some cases that's because only an income version of units is available.
For ITs as you mention they are obliged to distribute. For over 3 decades I've invested in ITs. For the first 25 years of that I found the dividends an inconvenience and was just seeking total return.
One could argue the IT model of forced distribution is flawed, as many people don't want the income, and have to suffer admin and often costs of buying to maintain their holdings. I would rather they had just compounded my growth without distributions
I've also invested in income unit trusts for over 30 years. For the first 25 or so of those all I cared about was total return. Accumulation units were not always available.
I think you'll find that this is not a particularly common practice to just do for the sake of it and more just a way of smoothing total returns.
Additionally, the 2 years I can remember for my funds were the dividends from profits in 2010 and 2012. Total fund returns were high at over 30% (excluding divs which would have been more). The divs were raised a few percent for payouts. No bad thing really as the markets had negative returns in 2011 and 2013, so they protected from losses if anything after exuberant years. The UK model doesn't facilitate this.
You also know that certain UK funds charge their fees to capital anyway to generate more income for distribution. That has the same "disadvantages" you mention
If you take a step back and think about total return, the UK model is also reducing your total investment in poor years, and eroding future returns too.
e.g. Say you invest 100, income earned is 5, and capital falls 20
UK: Your fund pays out say 5 dividend and capital falls 20. Your remaining investment is 80
Thailand: Your fund pays no dividend, capital falls 20, but now your remaining investment is 85
In this case the UK model is eroding your future income, by paying out after markets have fallen, whereas Thailand retains your money. It doesn't usually just sit in cash either. Thailand is now better placed for an upturn.
Bottom line is that Thailand's split between income and capital account has different implications to the UK. In Thailand think total return, whereas in the UK (unlike traditional shares)
that split is very clear on purpose
At the end of the day, if you really want some income in Thailand when the price falls below par, you can just sell some units.
eg in the example above, sell 5:
UK = dividend 5 (taxable), capital remaining 80
Thai = sale 5 (tax free), capital remaining 80
That's how you can get your consistent return. You will be in a similar position to the UK fund that still distributes out of income. Except the UK fund will be taxable on the div, and the Thai fund will suffer no tax. In both cases you would have the same investment going forward. No big deal and even more favourable for Thai tax
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( BTW There are also investment trusts that make distribution from capital, such as European Assets Trust. To some that's the worst of both worlds. Forced distributions and dipping into capital)
Bottom line: just understand what you hold and how to use it to achieve your objectives
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To be honest I have very few UK funds which pay me the ideal level / % of income I want anyway. As a result I end up selling/ buying to rebalance my fund anyway.
eg want 4% income, fund pays only 2.5% I have to sell to get the other 1.5%. Some funds pay no dividends, but I still want them and have to sell. So for me Thailand isn't much different.