My mutual fund has been profitable. Should I cash in just before or after distribution day? When is best?

Question

Stock market looks overbought to me. My mutual fund has done well. Distribution will be completed December 22, but should I sell before or after? When is best time?

Answer 1

If you are cashing out, then it would not make a difference if you sell before or after the distrubtion date. However, if you can wait till next year you can differ your capital gains tax.

If you are putting money into the fund then it is best to invest after the distrubtion date. Typically when a fund pays out (dividends & cap gains) the NAV (Price) drops; however, the number of shares you own increases if you selected for dividend/cap gain reinvestment. In other words, your total account value will remain unchanged. However, the capital gain distrubtions may be taxable (If not in an IRA), and therefore, it is best to differ your taxes to next year (Assuming that you are in the same tax bracket next year)