Avoiding "Buying" Mutual Fund Dividends
During this year, you need to know the ex-date of any mutual funds you plan to buy. If you follow this advice, you avoid the consequences of some nasty tax and investment performance.
To explain why, let me first define the "ex-dividend date". On the ex-date, all registered owners of mutual funds are eligible to receive any declared dividend and capital appreciation distributions. If you do not have funds before that date, you will not receive payments. You also want to remember the distribution date. After that date, you can continue to purchase your stock without negatively impacting the NAV (net asset value).
During the year (October-December), most mutual funds announced their dividends and capital gains distribution. You have nothing to worry about if you want to buy stocks. This allocation does not affect the share price. However, if you own a mutual fund, you need to consider the impact of this allocation on the net asset value or the stock value. On the day of distribution, you will see the net asset value of mutual fund shares declines by declaring the dollar amount. In the industry, we call it "buy dividends."
The working principle here. During the year, the cash paid in shares of the fund and the cash proceeds from the capital gains realized from the sale of assets, or the cash balance of the accumulated increase fund, or reinvested by the fund manager. At the end of the year, the fund must allocate at least 95% (?) Of the dividend / realized capital gains on which the new securities are not reinvested. Typically, funds are announced in October and November.
At the end of the year, the net asset value of the fund reflects the value of all its investments plus the initial cash balance and accumulated cash generated from dividends and capital gains. When the fund manager distributes dividends and capital gains, NAV drops the corresponding amount. This is good for those who have a fund for most of the year. They like the appreciation of NAV brought by investment, dividends and realized capital gains. Investors purchased before the ex-dividend and distribution date have purchased cash value. When the fund allocates cash, the new shareholder sees a decrease in the value of her fund's share, recovering some of her investment, and then taxing her own money! Not a good deal.