The dividends and interest earned by a mutual fund on its investment is the income. The income distribution is quarterly. When selling an investment security for a higher price than originally paid is a gain. Selling an investment security for a lower price than originally paid is a loss. If the investment security is held by the for more than one year, the gain or loss is a “long-term” capital gain or loss. If the investment security is held for less than one year, the gain or loss is a “short-term” capital gain or loss. Mutual funds gains and losses are netted together and when the fund has a net gain, that gain is usually distributed to the shareholder once a year.
As the end of the year rapidly approaches, December is the month when many mutual funds declare distribution of income and/or capital gains. There are some funds that make large (5% or more) distribution. On the trade date of dividend given shareholders, the share price is decreased by the same amount. Example: A 10% distribution to its shareholders. The net asset value is reduced 10% thereby providing an opportunity to capitalize on the reduced share price.
How can an individual make use of this fact? Select an investment classification, e.g., Emerging Market. Choose one of two funds within the classification and track the daily performances. Make use of ticker symbol. Read the prospectus and verify the information researched.
Using the mutual fund ticker symbol, here are some valuable data to research:
* Profile lists the address – toll free number – name of the Manager and tenure – inception date – net assets – investment category – investment objective, etc.
* Purchase includes the minimum initial purchase – minimum initial IRA purchase – maximum 12b1 fee – maximum front end sales load – maximum deferred sales load – brokerage availability.
* Performance provides the current net asset value (share price) – year-to-date return – long-term average return – best one/three year total return – worst one/three year total return – performance vs. benchmarks.
* Risk shows the risk rating – 3 year Alpha rating – 3 year Beta rating – 5 year Alpha rating – 5 year Beta rating – total expense ratio.
Mutual funds that make hefty distribution can be found at http://www.largedividends.com. Remember there is no guarantee of future performance and always read a mutual fund prospectus before making an investment. Good luck on your investing future.
This entry was posted on Sunday, November 29th, 2009 at 1:26 am and is filed under Investment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
