MD Financial Management Releases Year-End Income and Capital Gains Distributions

December 24, 2015

MD Financial Management Inc. (MD), a Canadian Medical Association (CMA)-owned financial management organization, released year-end income and capital gains distributions for its MDPIM Pools and MD Funds on December 18 and December 21, 2015. Distributions were announced for three additional MD Funds and MD Precision Portfolios on December 23, 2015.

What is a Distribution?

Mutual funds earn various forms of income from their investments throughout the year. Distributions are made up of these earnings and from capital gains that may result from selling these securities.

Income distributions can result in a tax liability for investors in non-registered accounts. However, distributions also reflect the active management taking place in a client’s portfolio. By realizing gains on an asset that has attained its full potential, MD’s managers can replace the asset with one that may have better growth potential.

As a general rule, distributions are made if a fund earns income in excess of the expenses it incurred during the year.

Any income earned by a mutual fund is subject to tax if the income remains in the fund. Mutual funds are taxed at the highest marginal rate, so it makes sense to instead distribute the income to investors who will likely be taxed at a lower rate. Reducing the tax paid by the fund means that more income can be distributed to investors, potentially improving the return on their investments.

When distributions are made, unit holders generally have two options. They can:

  1. take the distribution as a cash payment, or
  2. reinvest the distribution by purchasing more units at the prevailing unit price.

Most investors choose to automatically reinvest their distributions in the fund; that is, the distribution is automatically used to buy new units in the fund. Even though the unit value has decreased, the additional units compensate for this price drop. The value of the investment remains the same, other than through regular market fluctuations.

It’s important to note that a distribution is not a profit and is not related to a fund’s performance, yield or rate of return. It is possible for a fund to have a negative rate of return in a given year while still paying distributions.

Why Don’t All MD Funds and Pools Make Distributions?

If a particular fund does not declare an income distribution, it does not mean that the fund performed poorly in the tax year. A distribution is paid only to ensure that the fund itself does not have to pay tax. In fact, the goal is to minimize distributions payable to unit holders to minimize current year tax (assuming investments are held in non-registered accounts).

As a general rule, distributions are required if a fund earns income in excess of the expenses it incurred during the year. When this happens, income is distributed to unit holders and T3 slips are issued.

For more information about MD Financial Management, please visit md.cma.ca, talk to an MD Advisor or call the MD Service Centre at 1 800 267-2332.

About MD Financial Management

Owned by the Canadian Medical Association, MD’s only business imperative is to enhance physicians’ financial outcomes by focusing on their distinctive needs and operating in their best interests.

MD Financial Management has more than $40 billion in assets under administration and is dedicated to serving Canada’s physicians and their families. MD provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. For a detailed list of these companies, visit md.cma.ca.

MD Precision Portfolio is a trademark owned by the Canadian Medical Association, used under licence

Media Contacts

Maria Grant
Lead, External Communications
maria.grant@md.ca
613 809-0657

Deborah Thompson
DT Communications
deborah@dt-communications.ca
416 918-9551

MD Financial Management includes MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed. Their values change frequently and past performance may not be repeated. To obtain a copy of the prospectus, please call your MD Advisor, or the MD Trade Centre at 1 800 267-2332. The MD Family of Funds is managed by MD Financial Management Inc., a CMA company.

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