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What are fund dividends?

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Fund dividends are the pro rata payout to fund shareholders of cash dividends and/or capital gains the investment fund has earned minus disclosed expenses as specified in the fund’s prospectus.

When a fund receives income on its investments, it is proportionately distributed to the fund shareholders.  All investors who hold the fund's shares on record date are eligible to receive distributions.

Ordinary income dividends are distributed monthly, quarterly, semiannually or annually, depending on each fund’s prospectus.  Capital gain distributions are calculated and paid out at least annually.

Fund Distributions (Example)
Dividend History Capital Gains History
Date Per Share
Amount
Reinvestment
Price
Date Per Share
Amount
Reinvestment
Price
6/22/17 $0.08 $31.47 11/29/16 $5.5873 $28.27
3/23/17 $0.07 $30.42 11/23/15 $4.3392 $32.34
12/23/16 $0.08 $29.22 11/24/14 $6.4205 $36.94
9/22/16 $0.10 $33.40 11/25/13 $3.4873 $38.29

Funds frequently give their investors the choice of receiving the payout or automatically reinvesting the dividend to buy more shares, commonly without a further sales load.  The reinvestment of a dividend on an ETF frequently requires payment of additional brokerage commissions.

Reinvested dividends, cash dividends used to buy additional shares in the fund upon distribution, are considered constructively received – and taxable.

The constructive receipt of income is the tax doctrine that states income is constructively received if it is under a taxpayer’s control to receive the payment, unless the actual receipt is subject to significant constraints.

Like cash dividends, net capital gains can be paid out to investors in cash or reinvested in the fund, at the investor’s option.  Mutual fund investors generally have to pay taxes on any capital gains they receive and are held liable for any capital gain reinvested in the fund.

Generally, the taxation of distributions at the investor level depends on the amount and the nature, source and type of income earned on the underlying fund assets, the holding period of any portfolio assets sold, and the gain or loss recognized on the sale of those assets.

A capital gain is realized by a fund investor when fund shares are redeemed or sold above their purchase price.  This will occur when the shares are bought at a discount or sold at a premium to NAV.

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