Don’t rush funds in December

If you plan to invest in an equity mutual fund in a non-registered account any time soon, check first to see if a large December distribution is planned. If it is, wait until after the payment has been made.

This is because if you buy before the distribution, you’ll end up paying tax on your own capital. For example, suppose the fund has a net asset value (NAV) of $10 a unit. You buy 100 shares, for an investment of $1,000.

On Dec. 15, the fund pays a distribution of $1 a share which is taxable in a non-registered account. The NAV will immediately drop by that amount, to $9. You now have units worth $900 plus $100 in cash, on which you will have to pay tax. It’s a trap people fall into every year.

Some mutual fund companies post estimates of pending year-end distributions on their websites. Fidelity, for example, posts distribution forecasts for their funds on their website at

If you can’t find the appropriate information about a fund you’re considering, ask your financial advisor to check.
Purchases made in registered accounts, such as RRSPs and RRIFs, are not a pblem.