Capital gains distribution

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Capital gains distribution

A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.

Capital Gains Distribution

An amount of money paid to shareholders of a mutual fund from its capital gains over the course of a year. That is, a mutual fund takes its capital gains over a year and divides them among shareholders, who are then responsible for capital gains taxes. Capital gains distributions are usually made at the end of each calendar year and they reduce the fund's net asset value. Because of the existence of capital gains distributions, some analysts advise against purchasing mutual funds at the end of a calendar year because a shareholder will become instantly liable for capital gains taxes.

capital gains distribution

Payments to investment company shareholders based on gains from securities in the firm's portfolio that have been sold. These gains are passed through to the shareholders and are taxed to the shareholders. Distributions usually occur once each year.
Case Study Capital gains distributions can produce unexpected tax problems for mutual fund shareholders, especially investors who acquire mutual fund shares following a major increase in stock values. An even greater surprise occurs when a large distribution occurs during a year of poor market performance. Mutual funds are required to distribute to their shareholders all of the net gains the funds realize through the sale of securities. Unfortunately for some investors, gains that occur during one period are realized and distributed in a subsequent period. Buy a mutual fund following a major increase in stock values and you are likely to receive distributions on gains from which you did not benefit. In 2000 Warburg Pincus Asset Management made a capital gains distribution equal to a stunning 55% of assets to the shareholders of its Warburg Pincus Japan Small Company Fund. The distribution was occasioned by a year of spectacular gains in 1999 (a return of 329%) followed by a year of poor performance with resulting shareholder redemptions that forced portfolio managers to sell stocks to raise cash. Stock sales by the fund produced capital gains that triggered the distribution by Warburg Pincus. Although mutual funds typically make distributions during the end of the calendar year, Warburg Pincus officials indicated their distribution was made early in the year to allow shareholders time to take care of any tax liability. In a similar event, in December 2000 Select Software and Computer Services Fund distributed nearly 40% of its net asset value even though the fund was down over 9% for the year. Investors who purchased shares in the fund in early 2000 received a large taxable distribution even though their shares had lost market value during the year. Woe to the investor who fails to research a mutual fund purchase.

Capital gains distribution.

When mutual fund companies sell investments that have increased in value, the profits, or capital gains, are passed on to their shareholders as capital gains distributions.

These distributions are made on a regular schedule, often at the end of the year and are taxable at your regular rate unless the funds are held in a tax-deferred or tax-free account.

Most funds offer the option of automatically reinvesting all or part of your capital gains distributions to buy more shares.

References in periodicals archive ?
Over the past few years, the percentage of mutual funds with capital gains distributions has climbed markedly.
M2 EQUITYBITES-December 15, 2015-AllianceBernstein Income Fund announces one time special and capital gains distributions
With the duration of the bull market, capital gains distributions are growing in many mutual funds.
announced today annual reinvested capital gains distributions for the 2013 tax year to unitholders of the RBC Target Maturity Corporate Bond ETFs.
You may not know your exact gain or loss position until early December," when most mutual funds make capital gains distributions, says Eleanore K.
Capital gains distributions may occur in any type of long-term fund that might realize a profit on a security sale - even a so-called tax free municipal bond fund.
175 per share; short-term capital gains distributions of $3,387,407, equal to $0.
However, if you're going to attempt to reduce your client's tax liability, you should act well before then, since most funds make their annual capital gains distributions in December and some as early as October.
There are ways to still invest in mutual funds toward the end of the year and duck the capital gains distributions.
These losses can also offset capital gains distributions from mutual funds.
92 per share, short-term capital gains distributions of $3,606,799, equal to $0.
Essentially, there are three ways to incur tax liabilities from mutual funds: capital gains distributions by the fund; dividend distributions by the fund; and capital gains arising from the sale or exchange of shares.