please please help 2 What impact does a capital gains distribution have on the N
ID: 2792667 • Letter: P
Question
please please help
2 What impact does a capital gains distribution have on the NAVPS of a mutual fund? Are there tax implications for investors who continue to hold the fund? 3. What are the potential tax implications when an investor decides to automatically reinvest fund distributions into additional non-registered fund units? 4. An investor bought $5,000 of TBA Equity Fund units four years ago and chooses to reinvest all fund distributions into additional units. The investor sells the fund this year when the holdings are worth $12,000. Over the holding period, the investor received $2,500 in reinvested dividends. Will the investor report a capital gain of $7,000? Explain.Explanation / Answer
NAVPS : The Net Asset Value Per Share (NAVPS) is the value of one share of a mutual fund.
The Capital Gains are the result of selling of shares by the fund.
Ans to Que 2 : Capital Gains distributions leads to fall in the NAVPS because the people who buy fund shares after the date of distribution are not entitled to the distribution.
Tax Implications: The Capital gains are taxable in the hands of shareholders and they have to report the gain in their tax return.
Ans to Que 3: The investor has to pay the tax as per the nature of distributions even if the distributions are reinvested in the non registered funds.
Ans to Que 4: Yes, the investor has to report a capital gain of $7,000 becasue capital gain is calculated on the basis of value of units at the time of sale and its purchase. The dividend receivd during the holding period has already been added to the valuation of units as the NAVPS of unit is calculated every single day.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.