Mutual Fund Distribution FAQs (2024)

When securities held in mutual funds generate capital gains and income, earnings are passed to shareholders. Learn how this affects share prices, taxes and cost basis.

Read the latest distributions on thepage.

Why did the share price of my fund drop?

In other words, what happens to the Net Asset Value (NAV) of the fund when a mutual fund distribution occurs? On the date of the distribution, the share price, or NAV, of a fund drops by the amount of the distribution paid per share, assuming there is no change in the NAV due to market fluctuation.

For example, assume that on December 31, the fund declared a dividend in the amount of $0.25 per share. If the fund’s closing NAV on December 30 was $10, the fund’s NAV on December 31 would be $9.75.

Why do mutual funds pay distributions?

Mutual funds are required to distribute their ordinary income and capital gains to qualify for special tax rules available for regulated investment companies. If the fund has neither ordinary income nor capital gains, you generally will not receive a distribution.

Why didn't the fund pay a distribution?

The fund will not have an ordinary income distribution if the fund’s expenses are higher than the income received from securities the fund holds. Some funds may have securities that didn't pay dividends or interest.

Are mutual fund distributions taxable?

For taxable accounts, whether taken in cash or reinvested, mutual fund distributions may be subject to federal and state income taxes. If you hold the fund shares in a tax-deferred account, such as an IRA, the mutual fund distribution may not be subject to tax until fund shares are sold.

What tax forms are produced?

Janus Henderson will report to the IRS total dividends and capital gains of $10 or more on IRS Form 1099-DIV for taxable accounts. IRS Form 1099-DIV may also show backup withholding imposed by the IRS regardless of the dividends and capital gains distribution amounts. Although Janus Henderson does not produce IRS Form 1099-DIV for distributions totaling less than $10, those amounts may still be taxable.

A breakdown of total dividends, qualified dividends, capital gain distributions and other tax-reportable activity is available by calling a Janus Henderson Representative at 800.525.3713.

What are the tax consequences for receiving a fund distribution?

Whether you elect to reinvest or receive a distribution in cash, the amount may be taxable to you. If the distribution is reinvested, the amount is added to your existing cost basis (assets already taxed). Therefore, when you sell your shares, the capital gain/loss is the difference between your adjusted cost basis and gross proceeds.

You will only pay tax once on a distribution for the tax year the distribution occurs.

Should you have any specific tax related questions, please seek professional tax advice.

Why is the fund not more tax efficient?

Investment decisions are primarily based on the principal investment strategies of the fund. Secondarily, when trades in the fund occur, the fund’s accounting system is then leveraged to sell securities in the most tax efficient manner (considering both character and holding period of every tax lot that the fund sells).

What are the types of mutual fund distributions?

Ordinary income (ordinary dividends), qualified dividends, capital gains distributions and non-dividend distributions (return of capital) are the four types of mutual fund distributions.

What is ordinary income (ordinary dividend)?

Ordinary income is the sum of the fund’s net investment income and net short-term capital gains. Net investment income generally refers to dividends and interest paid on the securities held in the fund, minus expenses. Short-term capital gains can be generated when the fund sells a security and realizes a gain.

If the security that was sold was held in the fund for 12 months or less, the fund’s gain or loss is considered short-term and the gains are considered ordinary income and may be subject to ordinary income tax.

What are qualified dividends?

Distributions of qualified dividend income are generally taxed at long-term capital gain rates, provided certain holding period and other requirements are satisfied. A qualified stock is defined as a stock of a domestic company, foreign security readily traded on an established U.S. securities exchange, or foreign securities that have a comprehensive tax treaty with the United States.

What are capital gains distributions?

When the fund sells a security in its portfolio, it generally realizes a gain or loss. If the fund held the security for more than 12 months, the gain or loss is considered long-term, and generally taxed at the long-term capital gain rate, which is a lower rate than that of ordinary income.

What are Non-Dividend Distributions (Return of Capital)?

Return of capital is a nontaxable distribution from a fund not attributable to the fund's earnings. It generally occurs when a fund's distributions during a fiscal year exceed current earnings and profits as defined in IRS regulations for mutual funds.

Fund distributions are paid based on earnings as defined by SEC accounting standards, which may differ from how the IRS defines earnings. A return of capital may be caused by a "temporary" difference between a fund's book earnings (SEC accounting) and earnings for IRS purposes.

What is the record date?

The record date is the date on which investors must own shares of the fund, as of market close, in order to receive the distribution.

What is the ex-dividend date/payable date?

This is the date on which the dividend and/or capital gain distribution is either reinvested into the investor’s account or paid to the investor in cash. For Janus Henderson funds, the ex-dividend and payable dates occur on the same day.

When does a mutual fund distribution occur?

Many Janus Henderson equity funds pay a distribution yearly in December. However, there are also funds that pay a distribution on a monthly and quarterly basis. For example, most bond funds pay a monthly dividend.

If necessary, dividends and capital gains may be distributed at other times as well. If you own shares on the fund’s record date, you will receive the fund’s distribution, regardless of how long you have owned the fund.

When will Janus Henderson post preliminary distribution estimates?

Janus Henderson will typically provide preliminary dividend and capital gain distribution estimateshereduring the first week of October for funds that are expected to pay a distribution in December. Distributions apply to all investors equally, so if you buy shares in a fund before the record date, you may have to pay tax on any gains incurred from shares held on the record date. This is called "buying a dividend."

What does "buying a dividend" mean?

If you purchase shares of a fund just before a distribution, you will pay the full price for the shares and receive a portion of the purchase price back as a taxable distribution. This is referred to as "buying a dividend."

Assume you bought shares on December 30 and paid $10 per share. On December 31, the fund would pay you $0.25 per share as a dividend and your shares would now be worth $9.75 per share. Unless your account is set up as tax-deferred, dividends paid to you are included in your gross income for tax purposes, even though you may not have participated in the increase in NAV of the fund, and regardless of whether or not you reinvested the dividends.

You should consult your tax advisor regarding potential tax consequences of any distributions that may be paid shortly after purchase. For your convenience, distributions of net investment income and net capital gains are automatically reinvested in additional shares of the fund.

To receive distributions in cash, contact a Janus Henderson Representative at 800.525.3713 or change your distributions elections online. Whether reinvested or paid in cash, the distributions may be subject to taxes, unless your shares are held in a qualified tax-deferred account.