Capital gains distribution

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 ?
A part of the distribution may represent an ordinary income dividend or a capital gains distribution.
In addition, the fund has declared a long term capital gains distribution of USD0.0179 per share of common stock and a short term capital gains distribution of USD0.0271 per share of common stock, payable on January 22, 2016 to stockholders of record at the close of business on December 28, 2015.
In effect, you'll be eliminating some or all the asset generating the troublesome capital gains distribution, and replacing it with an asset generating no income tax liability, not subject to mandatory distributions at age 70 1/2, and not counting as a trigger for the 3.8 percent investment tax.
"The government lowered the tax on income from 30% to 22.5%, and it also suspended capital gains distribution tax on profits for two years," Eissa said.
"You may be better off waiting until after the capital gains distribution," says Ingrid John, a CPA and director of Capital Management Group in Washington, D.C.
In addition, the fund declared a long term capital gains distribution of USD0.2124 per share of common stock and a short term capital gains distribution of USD0.0210 per share of common stock, payable on January 16, 2015 to stockholders of record at the close of business on December 29, 2014.
It's also important to review a fund's prospectus to determine its capital gains distribution history as well as its turnover rate--a measure of how often the manager sells stocks--which can trigger capital gains.
The article provided some practical advice for executing sound tax strategies (for example, to avoid purchasing a mutual fund just before it is due to make a capital gains distribution).
BANKING AND CREDIT NEWS-December 4, 2014-The Swiss Helvetia Fund announces capital gains distribution
"Therefore," says Baptist, "if you're going to sell a fund at a loss, sell before it makes a capital gains distribution. Similarly, try to avoid buying a fund right before a distribution, because you'll get that distribution and owe taxes." Most funds will tell callers when distributions can be expected.
"If you look at the capital gains distribution of our tax-managed equity fund, it is zero, was zero and will be zero.
AllianceBernstein Income Fund Inc (NYSE:ACG) announced on Monday that it will pay a common stock one-time special income distribution of USD0.0910 per share; a long term capital gains distribution of USD0.0179 per share; and a short term capital gains distribution of USD0.0271 per share.