Capital Gains

A capital gain results any time an investment is sold for more than its purchase price. For example, if you purchase a fund at $20 per share and sell it for $25 per share, you experience a capital gain of $5 per share. Of course, a capital loss may also be realized if the investment loses value and is sold for less than the original purchase price.

When capital gains occur inside a mutual fund

Every time an investment is sold within a mutual fund, a capital gain or capital loss occurs – unless, of course, the investment is sold at a value equal to its purchase price. In that case there is no gain or loss.

A few potentially important things to know about capital gains within mutual funds include:

• Mutual funds do not pass individual capital gains on to the investor as they occur. Fund managers, instead, keep track of the gains and losses and compile them to determine a net gain or net loss for the year.
• If a mutual fund’s internal trading results in a net gain, the fund passes the gain on to investors, commonly near the end of the calendar year. Since the value of the capital gain was accumulated throughout the year, its value was included in the fund’s daily pricing. When the distribution of a capital gain is made it will lower the daily pricing of the fund. If the capital gain is reinvested in the fund, as happens automatically under the Plan, the total dollar value of the investment is not affected by the transaction.
• Capital losses are not passed on to the investor in the same manner as capital gains. Instead, a capital loss simply lowers the price of the fund.
• Capital gains are taxable if held outside of a retirement plan. Mutual funds held inside the Plan are not subject to taxation until money is withdrawn.

Get the help you need

Please talk with your tax advisor if you have questions about capital gains and taxes.

Neither NYSDCP nor its representatives give legal or tax advice. Contact an attorney or your tax advisor for specific information on capital gains and mutual funds tax consequences.