 Personal finance practice problem using OneNote. Mutual fund gained loss, dividend income, and capital gain distribution calculation. Prepare to get financially fit by practicing personal finance. You're not required to, but if you have access to OneNote, would like to follow along. We're in the icon left hand side practice problems tab in the 13111 mutual fund gained loss dividend income and capital gain distribution tab. Also take a look at the immersive reader. The practice problems typically in the text area too with the same name, same number, but with transcripts. Transcripts that can be translated into multiple languages either listened to or read in them. We're imagining we're investing in mutual funds remembering that as individual investors we could invest in individual stocks, individual bonds, but oftentimes utilize the tool of mutual funds, ETFs, allowing us to pool our investments with other investments and then the fund then allocating over a broader array of securities such as stocks and bonds, usually allowing us more diversification. Also remember that if you have your money under a retirement kind of benefit program, a tax benefit program such as the 401k or an IRA, usually you could think of those as basically a mutual fund that's under the umbrella of a 401k plan or an IRA giving you tax benefits but also restricting the money as well. So now we're imagining that we're selling the mutual fund, buying and selling the mutual fund and we're also thinking about other kinds of income that we get from the mutual fund. As we do this, some of these calculations will look similar to when we buy and sell individual stocks but we also have to consider the other kinds of income that could be involved with the mutual fund. Remember that when you buy and sell individual stocks you're buying a share ownership interest in a corporation, corporations being separate legal entities which have their ownership broken out into standardized units of shares or stocks that are traded if they're publicly traded on the stock exchange whereas mutual funds means that we have a fund that has securities within it which could include typically bonds and stocks and that we own a share of that fund in the mutual fund. So we're going to think about the types of income which could include buying and selling the mutual fund itself where we could have a similar calculation as buying and selling the stocks but we could also have the securities within the mutual fund such as the stocks earning dividends and so those dividends if not under the umbrella of an IRA because you could have different tax consequences if it was an IRA or 401K plan then they would be typically distributed through the mutual fund to us as the shareholders with a 1099 so we can report it on the taxes that mutual fund itself could buy and sell securities such as stocks within the mutual fund meaning we're not buying and selling them the mutual fund is buying and selling them and therefore resulting in possibly gains when that happens and those could flow through from the mutual fund to us capital gains even though we didn't really sell the thing in order to get the capital gains it was the fund manager that's doing it inside of the mutual fund you could also have interest income if you're holding on to bonds within the mutual fund so let's first do our first calculation which we saw in a prior problem where we're going to purchase and sell the mutual fund itself so if we say that the the shares purchase were 400 when we bought them the cost was $20 we're going to say that the dividend per share is 60 cents we'll calculate that later capital gain distribution is 70 cents we'll take a look at that later and then a year later we sell the all 400 shares at a price of $28 we could see the gain on a per share basis of the $8 so we'll do this calculation a couple different ways we saw it last time so we'll do it a bit quicker we got the shares purchased 400 shares the cost per share $20 so that means we spent $8,000 to purchase the mutual fund similar to us calculating if they were individual stocks but now we're investing in the mutual fund we then sold it a year later imagining a year has passed and we have 400 shares the price is now $28 and so that means that we've received at this time of sale $11,200 the difference between the cost and the sales price is of course our gain the $11,200 the total cost $8,000 gives us a gain of $3,200 which may be subject to taxation like capital gains tax if you're what we won't get into the taxes and in more detail than that here now note you could calculate this a little bit quicker if you want to get right down to the profit doing it thusly and this is quite useful calculation we got the per share profit price 28 and then the cost is $20 that means we got $8 of profit per share and then we can multiply that times the shares that we sold the reason this is a nice convenient calculation is that it's a little bit easier if the data changes for example if we bought 400 shares and we only sold like 200 or 100 shares for example if I do this calculation up top we'd have the 400 shares I'd have to figure out how much we we actually sold which was the 100 here to figure it out correctly whereas down here we're just going to calculate these the amount of the shares that we sold and that'll give us directly to our profit and loss notice that if you if you have some expenses with the gain or sale usually those expenses hopefully are kind of in material for the for the processing the gain of the sale the commissions for example so so it won't have a big difference on your decision-making process but it can muddy up the calculation a little bit okay so then we got dividend income now the dividend income note that we're not getting dividend income you can think of you might think of it well we got dividend income on the mutual fund in a similar way as we got dividend income on the individual stocks which would be comparable or similar to up here where we calculated the profit and loss in a similar way as if we bought and sold an individual stock but remember remember that the dividends here are not the dividends of like one mutual fund the mutual fund is invested in things like stocks so you might have multiple stocks within the mutual fund that the mutual fund is just holding on to those stocks are the things that generated the dividends to the mutual fund meaning the corporation is then paying part of their earnings to the owners of the corporation which the mutual fund that we are in owns shares which represent ownership interest in the mutual fund and they are then receiving the dividends which is income to the mutual fund which of course then needs to be passed through because someone has to pay taxes on that generally and so if it's if it's going to be some outside of an IRA and those are dividends to us or a 401k plan or a retirement plan then we will typically get like a 1099 so that we'll have to report the dividends that are flowing through so if we got dividends per share of 60 then the straightforward calculation once we have that if we had 400 shares times the 60 dollars in dividends we get the 240 dollars now those two kind of make sense if you're kind of your mindset is in the mindset of this is just like if i owned a stock right i would expect that i would get some dividends and i would expect that i have to calculate the calculate capital gains in a similar way and it's similar but you you want to kind of understand the mutual fund a little bit more depth in depth because it's not exactly the same holding as a stock but this one down here kind of throws people off usually you're like capital gain distribution didn't i just calculate my capital gains up here wouldn't i only have capital gains when i sell the stock that's what happens with stock wouldn't i only have capital gains when i sell the mutual fund and that's when it's like well not necessarily because although you could have capital gains when you sell the mutual fund because now you had a gain on the sale of the fund itself subject possibly to taxation but the fund manager within the fund is going to be buying and selling stocks and bonds to keep up with ever whatever goals or they have within the mutual fund even an each even an index fund is going to have to buy and sell shares to keep the the ratio of the investments correct so when they sell shares they might end up with a capital gain within the fund without us having had taken any action at all we didn't sell anything the fund that we're invested in sold something they incurred the capital gains like with the income on the dividends that's going to have to flow through to somebody that's going to pay the taxes on it which of course will be the owners of the mutual fund the shareholders of the mutual fund so this one is actually going to be reported to us in the form typically of a 1099 unless it's under the umbrella of a retirement plan because then that you get a tax deferral on it so you still might not have to recognize it till you pull it out in that case but if not if it's outside then you'll typically get a 1099 saying it's a capital gain distribution that could be a little bit confusing because when you data input that into tax software for example like it's going to show up as if you sold the stock because it's a capital gain like you sold the stock but you didn't actually aren't the one that sold it so that's why it gets a little bit confusing but it's not too bad share price 400 so we're going to have that distribution was 70 cents per share once we know that we just calculated out we got the 280 so we can then see the total gains or returns that we had for the holdings here are are the 3200 that's the amount we got from buying and selling at the capital gains similar to the stock we also got the dividends of 240 which is kind of similar to what you would expect with stocks but remember it flows through the mutual fund from multiple stocks not just one company the mutual fund isn't you know the one company kind of and then we got the capital gains plus 280 that gives us our types of income 3270 also note that you could have interest income if you had some investments in say bonds for example also just realize that the different kinds of income that we had here could be subject to different kinds of taxation meaning the capital gains might have a different rate if you're in the united states then then the dividend income for example and if it's short term versus long term you could have different rates as well but in terms of just overall return remember you could have multiple types of returns from the mutual fund you could have dividends coming through the mutual fund interest coming through the mutual fund capital gains coming through the mutual fund and then capital gains from buying and selling the mutual fund and whether or not you're going to have the reporting of some of this information to you may be dependent upon whether it be under the umbrella of a retirement account like a 401k plan or ira in which case you might not have to report the income until you sell until you're in retirement and so on you defer the income so therefore you might not have the same kind of reporting 1099 stuff that you would have if it were outside of a retirement type account