Question: Having heard about the great performance of the AIC Advantage Fund I contacted my financial adviser. He cautioned me, saying that while the fund has been tax efficient for a long time it could happen that one of these days there may be huge capital gains distributions. Also, I am wondering if I did decide to invest in this fund, would it be suitable for the systematic withdrawal plan in one or two years? – A.A.
There would only be a large cash distribution from the AIC fund if the manager were to sell several of the positions at a big profit. Under the laws governing mutual fund trusts, net realized capital gains within a portfolio must be distributed to unitholders each year. This is always possible, but the fund’s investment mandate is buy and hold, which makes such large sales unlikely. Such a move would run contrary to the company’s stated policy. Of course, if you should sell your units there could be a large capital gain realized which would be taxable, but this decision is within your control. Usually, we recommend choosing an equity fund for a systematic withdrawal plan that has fairly consistent distributions. Otherwise, units have to be cstantly cashed in to generate the cash flow needed for the withdrawals. One other point to remember is that AIC Advantage focuses on the financial services sector (banks, mutual fund companies, etc.) It is therefore not considered to be a “core” fund position. For that, you would look for a fund that is more broadly diversified. – G.P.