Capital gains for funds

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SusanT
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Capital gains for funds

Post by SusanT » Sun Oct 19, 2008 2:55 pm

I am not sure if I am thinking about this correctly or not. Due to the large number of people that have sold stocks, are there going to be higher capital gains on many mutual funds this year even though there is a loss in value?

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PiperWarrior
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Re: Capital gains for funds

Post by PiperWarrior » Sun Oct 19, 2008 3:06 pm

SusanT wrote:Due to the large number of people that have sold stocks, are there going to be higher capital gains on many mutual funds this year even though there is a loss in value?
The answer depends on funds. If a fund has a sizable realized loss carryforward, it can offset the realized gains with the loss carryforward, so it may not actually distribute capital gains to its shareholders. If a fund does not have enough realized loss carryforward, it may distribute capital gains.

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SusanT
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Post by SusanT » Sun Oct 19, 2008 3:14 pm

Is there a way to find that out before purchasing a fund? Would it be in the prospectus?

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PiperWarrior
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Post by PiperWarrior » Sun Oct 19, 2008 3:32 pm

SusanT wrote:Is there a way to find that out before purchasing a fund? Would it be in the prospectus?
Well, I don't know how to find a definite answer. You may be able to get one from a fund company.

One way is to look at annual reports of a given fund over the years and see the trend on how the amount of realized loss carryforward changes in bear and bull markets. You can find annual reports at SEC's web site.

For Vanguard stock index funds, Barry, one of the contributors to the forum, made it easy by putting together the following: You can also look at the accounting information from fund pages. Pick a fund, search for "accounting data", and click the link.

If you would like to see a snapshot instead of a trend, you can look at a page like this, and you see
  • "Realized capital gain/loss as a % of NAV"
  • "Unrealized appreciation/depreciation as a % of NAV"
For Vanguard Total Stock Market Index Fund, both realized capital and realized capital gain are negative, so I wouldn't worry about a capital gain distribution.

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CyberBob
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Post by CyberBob » Sun Oct 19, 2008 4:37 pm

SusanT wrote:Is there a way to find that out before purchasing a fund? Would it be in the prospectus?
Morningstar lists a funds potential capital gains exposure % under the tax analysis section for each fund.

Bob

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alvinsch
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Post by alvinsch » Sun Oct 19, 2008 4:58 pm

SusanT wrote:Is there a way to find that out before purchasing a fund? Would it be in the prospectus?
For Vanguard funds go to fund information page, click on distributions and then look under realized gains. That is what has currently been realized as of the last reporting time. These can change before year end but it gives you a good idea. None of the index funds I track show any positive realized gains but some active funds might.

As an example, here's a link to the international growth fund (VWILX) which currently shows realized gains of $1.36 or 2.4% as of 09/30/08.

https://personal.vanguard.com/us/JSP/Fu ... ist::tab=4

Many other fund families normally put out distribution estimates around this time of year. For example, T.Rowe Price and Acorn funds have put out cap gains estimates thru 9/30.

Hope that helps.
- Al

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Electron
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Post by Electron » Sun Oct 19, 2008 7:02 pm

I think the timing of cash flows into a fund is another factor.

If a lot of money came in at high prices, the fund can assign stocks purchased at higher prices as being sold when shares are redeemed from the fund.

I've heard that Index funds in particular take advantage of that opportunity to minimize distributions.

Portfolio turnover is another factor affecting year-end distributions. Funds with low turnover may have more gains to take when stocks are sold.

Kent

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