I noticed that the monthly flow to the equity funds in December is close to zero on average over the last 20 years. At the same time, the flow is the largest in January. The flow is measured as < Sum(total net assets at t) - Sum(total net assets at t-1 * (1+return)) >. Is this a common knowledge or data snooping error? What might be the cause of this?
Could be tax loss harvesting at year end. Might even have to do with cash needs for the holidays. Just guesses.
Mutual funds usually pay their distributions at the end of December. Why buy into the fund and then immediately get a taxable dividend back?
Thanks guy Wanderingcfa, why do mutual funds pay distributions at the end of December? Is it because of their tax year ending or fiscal year ending? I am a little bit confused. For a normal firm, investors must hold the stock at the time of fiscal year end to get dividend. Can investors get the distribution in December even if they buy the mutual fund in December? How can they identify the holders in such a short time? I am new at this area. Please help me understand. Thanks.
i believe they have to pay the realized gains and income out to maintain their pass through tax status as an investment company. why would you distribute funds out early and make less mgmt fee? fund mgr is compensated on basis of assets under mgmt. why not reinvest during the year, and deal with minimum possible distribution at end of year, when you must do it. the other issue you are referring to is the qualified vs nonqualified dividend issue. the govt wants you to hold the fund for a certain no. of days (30 i believe) before they let you take advantage of preferential dividend and LT gain distribution tax rates. otherwise people would run tax advantaged distribution harvesting rackets. buy 100 day 1, get 20 taxed at 15% day 2, sell for ST loss of 20 day 3, netting the tax deduction due to difference between the ST rate / LT rate on the distribution amount. i am not a tax expert, so others can color in more detail, and correct me if i got it wrong.