Understanding mutual fund capital gains

Due to the long-term nature of AIC’s buy-and-hold investment philosophy, unrealized capital gains often accumulate within AIC Funds’ portfolios as the share prices of the Funds’ holdings increase over time.

Because of this, some unitholders are occasionally concerned that if an AIC Fund sells securities, unitholders (regardless of when they bought their units) could be faced with capital gains distributions at the end of the year.

To deal with this concern, trading activity within our Funds is kept to a minimum.

Some mutual fund companies undertake a high level of trading activity and then flow the resulting gains through to unitholders in the form of a capital gains distribution. Not AIC.

In addition, if securities are sold to meet redemptions by an AIC Fund, to the extent possible, AIC makes use of the Capital Gains Refund Mechanism (CGRM) of the Income Tax Act to deal with any capital gains triggered by trading activity within our Funds.

The CGRM prevents double taxation of the underlying capital gains – once in the hands of the redeeming investors, and again in the hands of the remaining unitholders.