Ask Colin

Why do you compare your returns to the Total Return (accumulation) index when it is not a perfect benchmark?

You are correct that the TotalReturn (accumulation) index is not a perfect benchmark. The differences are:

  • The index notionally reinvests dividends on the ex-dividend date which is quite a few weeks ahead of the actual payment date. I cannot reinvest a dividend until the payment date, so this makes it difficult for me to ever catch up.
  • Franking credits accrue on the payment date for the dividend and are received after the SMSF tax return is filed, many months later and in fact well into the next financial year. Franking credits are not notionally reinvested in the accumulation index.

Thus the total return index is not a perfect benchmark, but it is the best available. This makes it difficult for me to match the benchmark, because dividends are notionally reinvested before I can effectively do likewise. On the other hand, including franking credits in my return for the year at the dividend payment date partly makes up for that – even though they cannot be reinvested till towards the end of the next financial year.

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