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Welcome to Part 2 of Making Sense of Mutual Fund Distributions: What happens to the value of mutual fund units after you receive a distribution?

Let’s say you buy 100 mutual fund units worth $10 each.

Over time, the fund’s value – called its Net Asset Value or NAV per unit – rises. Your units are now worth $12 each.

What happens next? Let’s take a closer look.

The fund pays you a distribution of $1 for each unit. The price of your units drop $1 as the money flows from the fund to you.

You can receive your distributions as

  • cash
  • or more units at the new price

Either way, the total value of your investment will be the same.

To sum up:

Distributions take the income from your mutual fund and turn those dollars into cash or more units for you.

Just remember: as distributions flow to you, the price of your fund units will go down by the same amount. And if you invest outside an RRSP or other registered plan, taxes may apply.

To learn more about distributions, talk to your advisor or a qualified tax specialist.

Stay tuned for part 3 of our series.

Disclosure

Recorded on October 27, 2021. This has been provided by RBC Global Asset Management Inc. and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial planning or other advice and such information should not be relied upon for providing such advice. You should consult your own legal, accounting, tax, investment or financial planning advisors before engaging in any transactions.


® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2021