I know this is an old question but this is what I have come up with. It could be very wrong but it's an attempt.
I think the difference here is that with ii, the fund reinvests the dividends into its holdings when they receive it and your actual holding in the fund does not change. You feel the benefit in the fact that the index will reflect the dividend (total return indices include dividend yield in the total yield) but if you held 1 unit before a dividend then you will still hold the 1 unit after the dividend
With i), you receive the dividends paid on the shares constituting the index and you reinvest the dividends. So when you reinvest the dividends, your actual holding increases. If you held 1 unit before a dividend then after the dividend is paid you, you reinvest and hold more than one unit afterwards. This is more consistent with what happens with holding a single dividend paying security.