Re: Return of Capital

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In Reply to: Return of Capital posted by Dave on April 06, 2005 at 22:09:47:

: I own several mutual funds which pay monthly distributions which include a "return of capital" component. The distributions are paid in additional fund units which are reinvested. A typical example from a statement would be "8.557 units @ $16.62, includes $43.07 roc"
: I have been entering this information as a reinvested distribution for the 8.557 fund units, and as a non reinvested Return of Capital for the $43.07. This approach keeps the total number of units and the total $ value of my mutual fund correct, however, when I do a Distribution Summary Report the dividend and return of capital are added together which results in an incorrect total, as well as, I suspect, an incorrect yield. I also suspect that the yield on my fund graph is incorrect using this approach.
: I was wondering if there is another way of entering this data which would give me correct results.

: Dave

Hi Dave,

I'd suggest recording this as 2 reinvestments, rather than 1. The total of the 2 would still add up to the 8.557 units, but one of them would be a "Dividend" type, and the other would be a "Return of Capital" type.

You will need to do some minor calculations to figure out how to break this up into 2 reinvestments. As an example, assume the total distribution was $100, and $43.07 of that was a Return of Capital type. In this case the RofC reinvestment would be for (43.07/100) * 8.557 shares, which equals 3.6855. The Dividend type of distribution would be for 4.8715 shares (8.557 - 3.6855).

Another reason you'll want to record it this way is that when you receive a RofC distribution this lowers your cost basis (The good part though, is that a RofC is usually not taxable as a distribution). The Dividend distribution type doesn't affect your cost basis when you receive it. Both reinvestments will of course increase your cost basis appropriately.

Thanks,
Mark
--
Mark Beiley
Fund Manager, portfolio management software for Windows 95/98/ME/NT/00/XP/2003

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