Dividends and Capital Gains

Mutual funds typically have a payout, often called a distribution, of dividends and/or capital gains to shareholders as specified in a fund’s prospectus. Until the payout date, dividends and capital gains awaiting distribution are included in a fund's daily net asset value (NAV).

Record date

All shareholders who hold shares of a fund on this date are eligible to receive distributions.

Ex-date

This is typically the business day after the record date. On the ex-date, the fund's share price drops by the amount of the distribution that will be paid for each share, not including adjustments for market fluctuations.

Example: Let’s say that a fund has an ex-date of December 30 and is scheduled to make distributions of $1 per share on the payout date. On December 29, the fund’s NAV is $10 per share. On the ex-date (December 30), the NAV would drop to $9, barring any market fluctuations or reinvestment.

Payouts

No matter when you buy shares of a fund – months before the record date or just days before – if you own shares of a fund on the record date you will receive the dividends and/or capital gains. If you buy a fund right before the record date, part of your investment will be returned to you when distributions are paid. This is known as “buying a dividend.”

Depending on how your account is set up, you’ll either receive a check for the payout or the distribution will be reinvested.

Taxes

You must pay taxes on mutual fund distributions (unless the mutual funds are held in tax-advantaged accounts such as Individual Retirement, 401(k) and 403(b) accounts), whether you receive your distributions in cash or reinvest in additional fund share. Long-term capital gains distributions are taxed at long-term capital gains tax rates; distributions of short-term capital gains are taxed at ordinary income tax rates.

Questions?

Talk with your financial professional about how this may affect your investment strategy. Contact your tax advisor for information about how payouts could impact your personal tax situation. Contact us if you have questions about charges or expenses or to request a prospectus.