mutual fund capital losses

[GrayHare]

Many mutual funds annually state the capital gains realized per share and pass those gains to shareholders where they are taxed. I don't think I've ever seen a fund post a capital loss for a year. Is that possible?

 

[JoeWras]

Many mutual funds annually state the capital gains realized per share and pass those gains to shareholders where they are taxed. I don't think I've ever seen a fund post a capital loss for a year. Is that possible?

Losses get baked into the price. They are not "distributed."

 

[audreyh1]

No, realized capital losses are kept in the mutual fund and are applied against future capital gains. After 2008 most equity mutual funds did not distribute any capital gains for a couple of years.

Mutual funds aren’t allowed to distribute capital losses.

 

[scrabbler1]

No, realized capital losses are kept in the mutual fund and are applied against future capital gains. After 2008 most equity mutual funds did not distribute any capital gains for a couple of years.

Mutual funds aren’t allowed to distribute capital losses.

The same thing happened in 2001. When the market rebounded in 2003, investors saw rising values in their fund holdings without getting hit with cap gain distributions because those would-be distributions were offset by carryover losses. This went on for a few years until the carryover losses were completely offset by cap gains.

I remember finding, with some help, a footnote in the fund's annual report which showed the amount of these carryover losses. When I saw these reports in a pdf file years later after the 2008 meltdown, I simply did a search for the word "carryover" to save me some effort.

 

[GrayHare]

Interesting info, thanks. Having to wait for later cap gains rather than being able to deduct cap losses is a drawback of mutual funds of which I had not been aware.

 

[JoeWras]

Interesting info, thanks. Having to wait for later cap gains rather than being able to deduct cap losses is a drawback of mutual funds of which I had not been aware.

Although ETFs can have distributions, they are pretty rare. You can go that route instead to control your gains or losses.


When we donate to charity, we like to use appreciated assets. ETFs are much better for that than mutuals.

 

[gcgang]

Interesting info, thanks. Having to wait for later cap gains rather than being able to deduct cap losses is a drawback of mutual funds of which I had not been aware.

Drawback? Depends. Could be an advantage. If you buy a fund that has large loss carryforwards, they can realize a lot of gains before you'd get a distribution.

But with their higher fees, inept managements and general bad guy personas, they remain the enemy.

 

[walkinwood]

Although ETFs can have distributions, they are pretty rare. You can go that route instead to control your gains or losses.

That's true of index mutual funds too, isn't it?

 

[audreyh1]

Interesting info, thanks. Having to wait for later cap gains rather than being able to deduct cap losses is a drawback of mutual funds of which I had not been aware.

If you personally have capital losses in the fund, then I recommend you realize those losses by selling the fund and waiting over 30 days to buy it back to avoid a wash sale. You can buy something similar in the meantime, just not substantially identical.

If the fund has realized losses, but you don't - then well maybe it doesn't matter, but you will probably be free of cap gains distributions in the near future.

 

[Adventurer]

Maybe different in the US, but doesn’t the overall value of the fund simply reduce? Ie, the price for each unit would reduce, in the same way the price for a share reduces? That’s how it works in the UK ... I certainly wouldn’t recommend anyone sells just because of a short term reduction in price, after all, the time frame for these investments should be medium-long term.

 

[street]

^ that is how I thought that was the way they worked in the US also.