Let's suppose a fund is tracking an index
A, and let's suppose that it does it with 100% of accuracy. Therefore, given a particular period of time, the value of the fund should fall and rise exactly in the same proportion as
A does. For simplicity, let's supposed as well that during the given period of time the index only rises.
Let's say now that that fund is of type 'accumulation', that is, all the dividends earned by the fund are automatically reinvested.
In the above hypothesis, I don't understand how the fund can still track the index. I mean, if all the dividends of the fund are reinvested, shouldn't a particular investor see a performance greater than the index itself? In addition, shouldn't the fund's monetary mass be incremented more than the index' one?
In other words, my understanding is that a distribution index fund (dividends are distributed to investors) should have a lower value compared to the same fund, but in its accumulation version, right?
I have realized that, for the first point (how can the investor see the same performance as the index, regardless of have reinvested the dividends), the investor earns more net value, but he has technically invested more as well, therefore the porcentual gain will make sense.