Income Equalization Mutual Funds

Equalisation is relevant to all funds in which an incentive fee is paid to an investment manager.

Income equalization mutual funds. While the use of equalization is not sanctioned in the tax code the concept of equalization and its merits have been acknowledged by the irs in. System manual section 5 96 income equalization equalization beginning balances this document contains proprietary information of sungard investment management systems. Certain blackrock funds operate income equalisation arrangements with a view to ensuring that the level of income accrued within a fund and attributable to each share or unit is not affected by the issue conversion or redemption of shares during a distribution or accumulation period. Income equalization therefore applies to that portion of a purchase or redemption payment which is allocated for undistributed earnings.

These arrangements may have an impact on the tax position. By way of background funds that distribute income do so regularly sometimes yearly sometimes half yearly quarterly or monthly. Funds using income equalization if a mutual fund does use income equalization the distribution for the pay period is a stated factor in the price per share. 3 equalization beginning balances when converting an existing mutual fund that has balances in the equalization debit and.

The equalization debits method attempts to alleviate the unfair tax burden of remaining shareholders by allocating some of the fund s earnings and profits to redemptions made throughout the year. An additional dividend paid to eligible stockholders when their divided income is reduced due to a change the board of directors makes to the dividend payment schedule. Equalization the basics equalisation is the method used by funds in order to ensure that every shareholder pays the same percentage of performance incentive fee no matter when they subscribe to the fund. You re responsible for reporting mutual fund distributions on your tax return.

New investors are not entitled to any share of the income of a mutual fund scheme which arose before they bought their units. According to the nonpartisan tax foundation one of the implications of equalization is that roth savings vehicles would become more popular for higher income investors. Mutual fund distributions can take one of three forms. This can be done a number of ways 1.

However at the end of each distribution period the fund management allocates the same amount from the income of the fund to each unit. No copy or other reproduction shall be made without written permission of sungard. Certain mutual fund distributions can receive more favorable tax treatment than others.