Mutual Fund Distributions

Definitions:

Investment Principal is the Net Asset Value (NAV) * Number of lots

1 lot = 10,000 shares

Ordinary Distributions are taxable dividend payments

Special Distributions lower the Investment Principal (the initial investment NAV) and are not taxable events

Examples:

At a future date, the fund's NAV is JPY 12,000 and gives a JPY 1,000 distribution, so the NAV after distribution is JPY 11,000.

Investor A
Initial Investment: JPY 9,000 (1 lot)
Unrealized Profit/Loss: JPY 3,000 (JPY 12,000 - JPY 9,000 = JPY 3,000)
Distribution: JPY 1,000 (Ordinary Distribution, taxable when from profits)
NAV After Closing Distribution: JPY 11,000 (JPY 12,000 - JPY 1,000 = JPY 11,000)
  • For Investor A, the Unrealized Profit in NAV before distribution is JPY 3,000 (JPY 12,000 - JPY 9,000)
  • After an Ordinary Distribution of JPY 1,000:
    • NAV becomes JPY 11,000 (JPY 12,000 - JPY 1,000)
    • Investment Principal remains JPY 9,000
    • Unrealized Profit is reduced to JPY 2,000 (JPY 3,000 - JPY 1,000)
  • The Ordinary Distribution JPY 1,000 is taxable as a Realized Profit
  5. Investment Principal
    Unrealized Profit
    Ordinary Distribution
Investor B
Initial Investment: JPY 11,600 (1 lot)
Unrealized Profit/Loss: JPY 400 (JPY 12,000 - JPY 11,600 = JPY 400)
Distribution: JPY 1,000:
JPY 400 (Ordinary Distribution, taxable when from profits)
JPY 600 (Special Distribution, non-taxable principal reduction)
NAV After Closing Distribution: JPY 11,000 (JPY 12,000 - JPY 1,000 = JPY 11,000)
  • For Investor B, the Unrealized Profit in NAV before distribution is JPY 400 (JPY 12,000 – JPY 11,600)
  • After a distribution of JPY 1,000:
    • NAV becomes JPY 11,000 (JPY 12,000 - JPY 1,000)
    • Unrealized Profit of JPY 400 is realized and reduced to zero
    • Remaining JPY 600 of distribution (JPY 1,000 - JPY 400) is a Special Distribution that reduces the Investment Principal to JPY 11,000 (JPY 11,600 - JPY 600)
    • Investment Principal is reduced to JPY 11,000 (JPY 12,000 - JPY 1,000)
  • The Ordinary Distribution JPY 400 is taxable as a Realized Profit
  • The Special Distribution JPY 600 is not taxable
  5. Investment Principal
    Unrealized Profit
    Ordinary Distribution
    Special Distribution
Investor C
Initial Investment: JPY 15,000 (1 lot)
Unrealized Profit/Loss: JPY -3,000 (JPY 12,000 - JPY 15,000 = JPY -3,000)
Distribution: JPY 1,000 (Special Distribution, non-taxable Investment Principal Reduction)
NAV After Closing Distribution: JPY 11,000 (JPY 12,000 - JPY 1,000 = JPY 11,000)
  • For Investor C, the Unrealized Loss in NAV before distribution is JPY -3,000 (JPY 12,000 – JPY 15,000)
  • After a Special Distribution of JPY 1,000:
    • NAV becomes JPY 11,000 (JPY 12,000 - JPY 1,000)
    • Investment Principal is reduced to JPY 14,000 (JPY 15,000 - JPY 1,000)
    • Unrealized Loss remains JPY -3,000 (JPY 11,000 - JPY 14,000)
  • The Special Distribution JPY 1,000 is not taxable
  5. Investment Principal
    Unrealized Loss
    Special Distribution