Mutual fund payouts

Understanding mutual fund dividends and capital gains

Mutual fund payouts

Mutual funds typically have a payout (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). Here are a few facts about mutual fund payouts:

Record date

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

Ex-date

This is typically the business day after the record date. On the ex-date, a 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: Say 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 – many months before the record date or just days before – if you own the shares 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 distributions will be reinvested.

Taxes

You’ll 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 shares. You can find current information about the tax rates applied to capital gains at the IRS website.

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 taxes.

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