Weird mutual fund behavior today

[sneezel22]

Hey all - I own 10 mutual funds, all of which have proven time after time to correlate strongly to market movement (if the market is up, they are up, if the market is even they are even, etc).

Today, while almost all stocks and mutual funds were posting solid gains, BUFTX plummeted over 5%. It would be out of the ordinary for this to happen even if the market was DOWN 1-2%, much less the fact that today the market was UP 1-2%.

All of its top 10 holdings posted solid gains today. I know that's just a portion, but still, this plummet really is way outside the boundaries of normal.

So, any ideas how this is possible?

[jpg7n16]

So, any ideas how this is possible?

It's December. Many funds do their end of year distribution around this time. Those distributions directly lower the fund's NAV (net asset value).

If you haven't received it already, you should be expecting a distribution of over 5% (since that's how much your's 'plummeted' -- it's more likely that that's how much your fund 'distributed').

ex. -- if your fund would otherwise be up 1%, but distributed 6% of NAV, you'd expect it to be down approx. 5% after the distribution (+1% - 6% = -5%)

Nothing to worry about. It happens every year.

[sneezel22]

Aha. That is precisely the explanation I was hoping for... just didn't know such a thing existed.

Thanks!

[bjl584]

They have all gone X dividend on you. No need to panic.

It's distribution time!

[EEinNJ]

Actually, there IS a reason to panic, a little. Now you have to pay taxes on that distribution, and if you haven't already paid enough taxes through payroll withholding or estimated payments, you may even owe a penalty.

[jpg7n16]

Actually, there IS a reason to panic, a little. Now you have to pay taxes on that distribution, and if you haven't already paid enough taxes through payroll withholding or estimated payments, you may even owe a penalty.

Ummm.... do what?

1) If it's held in an IRA, the mutual fund distributions are not taxable at all.
2) Even if it is taxable, it'd likely be at max 15% rate this year
3) There is no penalty tax on a mutual fund distribution
4) Most people get a refund these days, and I highly doubt that the tax on a 5% distribution of a mutual fund (if held in a taxable account) would be more than you've paid in
5) You would know at the time of your filing whether or not you owed any additional tax


A mutual fund distribution is completely different than taking an IRA distribution.


OP - there's still no reason to panic.

[EEinNJ]

"Panic" is a dramatic word, I was piggybacking the previous post's comment- but more to the point, neither the OP or anyone else mentioned IRA's or distributions from them.

With 10 funds, this may well be a non-inconsequential amount of money. Fund distributions may not be just dividends, but short-term and long term capital gains.

If these are not in retirement accounts, the pay-outs have a tax liability, even if no profit has been realized by selling shares. If you don't have enough of your overall tax liability already in the pot, it's entirely possible to not only owe money, but a penalty, too. Been there, done that.

[kv968]

If these are not in retirement accounts, the pay-outs have a tax liability, even if no profit has been realized by selling shares. If you don't have enough of your overall tax liability already in the pot, it's entirely possible to not only owe money, but a penalty, too. Been there, done that.

Why did you pay a penalty? The capital gains distribution will be on the 1099-DIV form the mutual fund company sends you. Enter it into your taxes and if you owe money on it, pay it. I don't see where a penalty would come in unless you didn't pay what you owed.

[jpg7n16]

"Panic" is a dramatic word, I was piggybacking the previous post's comment- but more to the point, neither the OP or anyone else mentioned IRA's or distributions from them.

Penalties from distributions are most commonly associated w/ IRA distributions.

You mentioned penalties, ergo my statements.

With 10 funds, this may well be a non-inconsequential amount of money. Fund distributions may not be just dividends, but short-term and long term capital gains.

Agreed.

If these are not in retirement accounts, the pay-outs have a tax liability, even if no profit has been realized by selling shares.

Agreed.

If you don't have enough of your overall tax liability already in the pot, it's entirely possible to not only owe money, but a penalty, too. Been there, done that.

Please see point 5 made above, echoed by kv968 -- you would know if there are any taxes due at the time you file. And you could pay your tax to avoid a late payment penalty at that time.

There is no penalty tax inherent on mutual fund distributions. It doesn't exist. Any penalty would be due to your failing to pay your taxes by the due date, of which you would know of the shortfall at the time you file, and have several months to correct.

[EEinNJ]

Why did you pay a penalty? The capital gains distribution will be on the 1099-DIV form the mutual fund company sends you. Enter it into your taxes and if you owe money on it, pay it. I don't see where a penalty would come in unless you didn't pay what you owed.

I've had up & down years in the amount of distributions, so it can be hard to predict. And these distributions don't come until mid-December.

Again, the issue of a penalty is not inherent in mutual funds or any other investment. It's simply if you owe too much money on your taxable income compared to what you've paid in through withholding or estimated payments. I've had it happen in conjunction with a loss of deductions, and change in filing status.

There are exceptions (I think if you withheld 90% of what you owed last year), & workarounds like doing 5 year income averaging.

[kv968]

I've had up & down years in the amount of distributions, so it can be hard to predict. And these distributions don't come until mid-December.

Again, the issue of a penalty is not inherent in mutual funds or any other investment. It's simply if you owe too much money on your taxable income compared to what you've paid in through withholding or estimated payments. I've had it happen in conjunction with a loss of deductions, and change in filing status.

There are exceptions (I think if you withheld 90% of what you owed last year), & workarounds like doing 5 year income averaging.

I agree, the amount of the distributions can differ quite a bit from year to year, but I still don't see where there would be a penalty. If you owe more than what you've paid in due to witholdings, loss of deductions and/or filing status change, you just pay the difference and you're done no matter where that overage came from...no penalties.

Now if you didn't have the money to pay the taxes owed and didn't get an extension or something along those lines then I can see you paying a penalty but that would happen for any taxes due not just on mutual fund distributions.