Originally Posted by
fcoolaiddrinker
So if the nk stock is in a mutual fund or etf the day the transaction goes through don’t the fund managers have to redistribute proceeds into other stock as directed by the fund prospectus? It’s not like they can just send everyone a check that day.
It’s still a win for investors. But yeah, fund managers rebalance their portfolios all the time - especially index fund managers. Vanguard might even use the profits to buy F9 stock, since it’s become cheaper the last month or so. But even most index funds can just rebalance with stock from another company in the same sector. And the non index funds certainly can. And whether they distribute realized capital gains to the entire fund, or to the individual mutual fund shareholder is dependent on the options the shareholder has chosen. I’m paying a fair amount every quarter to the IRS for mutual fund dividends and realized capital gains that are automatically reinvested (mostly by Vanguard as it happens) to increase the mutual fund shares I hold.
What Is a Capital Gains Distribution?
A
capital gains distribution is a payment by a mutual fund or an exchange-traded fund (ETF) of a portion of the proceeds from the fund's sales of stocks and other assets from within its portfolio. It is the investor's pro-rata share of the proceeds from the fund's transactions.
It is
not, however, a share of the fund's overall profit. The fund may gain or lose money over the course of a year, and your balance will rise or fall accordingly. But if the fund gained from the sale of any of its stocks during that year, it will make capital gains distributions to its shareholders.
Mutual funds are required by law to make regular capital gains distributions to their shareholders. The owners of mutual fund shares have the option to take the capital gains distribution in the form of immediate payments or to reinvest it in additional fund shares.
Dividend Distributions
In addition to distributing income generated by the sale of assets, mutual funds also make
dividend distributions when underlying assets pay earnings or interest. Mutual funds are pass-through investments, which means any income they receive must be distributed to shareholders. This most often occurs when a fund holds dividend-bearing stocks or bonds, which typically pay a regular amount of interest annually, called a
coupon.
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