Distributions FAQ

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What are distributions?

Distributions are the mechanism by which mutual funds transfer interest, dividend income, and realized capital gains that have accrued inside the fund over the course of the month or year to unit holders.

Something important to keep in mind is that distributions do not necessarily relate to a fund’s short-term performance. A fund may pay a distribution even if its performance during the year is negative. Conversely, in a year of strong performance, a fund may pay out a much smaller distribution than what the annual return may suggest.

Why do mutual funds pay distributions?

Mutual funds pay taxes at the highest marginal tax rate. As such, it is more tax-efficient for mutual funds to distribute their income and gains to unit holders so that the income is taxed at a more favourable rate.

How will I know what distributions I’ve received?

You will receive a T3 slip in early February for each non-registered account you own which will report all of the income and gain distributions paid out by the mutual funds you hold.

Distribution Payout Options

The default option for unitholders is to have their distributions re-invested into additional units of the fund. Alternatively, unitholders can opt to receive the distributions in cash if they provide instructions accordingly. The tax treatment of both options is identical.

Why did the price of the fund drop immediately following a distribution payout?

Immediately following a distribution, the price of a fund drops by an amount equivalent to the payment. The offset occurs when additional units of the fund are issued to the account and these are equivalent in value to the amount of the distribution. This means that the value of your investment doesn’t change; instead you end up owning more units in the fund at a lower unit price.

For example, let’s say you own 100 units in a fund that is valued at $10.00/unit for a total investment value of $1,000. If the fund pays a distribution of $0.10/unit, its price will drop to $9.90 following the distribution ($990). But, because 1.01 units ($0.10/$9.90) will be re-invested in the fund, the value of your investment remains unchanged (101.01 units x $9.90/unit = $1,000).

When are distributions made?

The following six Mawer Mutual Funds pay an income distribution monthly (on the last business day of the month):

Global Balanced Fund
Balanced Fund
Tax Effective Balanced Fund
Global Bond Fund
Canadian Bond Fund
Canadian Money Market Fund

Please note: This distribution is comprised of any interest and dividends earned by the fund for that particular month. Should the fund not accrue income in excess of the fund’s management expense ratio, it will not trigger a distribution for that month.

With the exception of the Mawer Canadian Money Market Fund, all of the Mawer Mutual Funds pay a year-end distribution. This distribution payout will comprise of net income and net realized capital gains. In December, the Mawer Canadian Money Market Fund will pay the normal monthly distribution at month-end.

Why have I not received a monthly distribution from a fund that is supposed to pay a monthly distribution?

Mawer funds do not always pay a monthly distribution payment. Income received inside the fund is first applied against the management expense ratio (MER) of the fund and anything left over is distributed to unitholders. This is a common mutual fund structure as it creates tax efficiency. If the income is less than the fund’s MER (as has been a common occurrence in recent times) unitholders will not receive a distribution.

Implications of investing later in the year

If you are a unit holder of record on the record date, you will receive the full distribution regardless of how many months you have been invested in the fund. This means that if you purchased a fund towards the end of the year, you will be paid out income for the entire year. While tax considerations should never dictate your investment strategy, it may be beneficial to speak with your Investment Counsellor or Advisor if you are considering investing in a fund closer to year-end.

Please don’t hesitate to contact your Mawer advisor to follow up with any further questions.

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