TAX CONSIDERATIONS

A mutual fund qualifies as a Regulated Investment Company (RIC) if it meets the following requirements:

  • 90% of the fund’s gross income must be derived from certain sources; and

  • At quarter end, the fund must meet certain diversification requirements.

The RIC is not subject to tax on income or capital gains if it distributes at least 90% of its income and gains each year. The remaining 10% does not have to be distributed but is taxed at corporate rates, therefore funds typically distribute 100% of income and gains.

The Internal Revenue Service imposes a 4% excise tax on RICs if they don’t distribute at least:

  • 98% of ordinary income earned during the calendar year; and

  • 98.2% of capital gain for the 12-month period ending October 31.