A mutual fund can be an attractive investment because of the convenient features funds provide. The fees you pay buy professional management of a diversified portfolio, comprehensive bookkeeping and tax reporting. Tracking mutual funds is not difficult, and there is plenty of free tracking software on the Internet to help you track your funds.
Mutual Funds Defined
Mutual funds are pools of money sent in from many investors and professionally managed by the fund manager. The money gets invested in a portfolio of securities, including stocks and bonds. You get mutual fund shares when you invest. The price per share, called the net asset value or NAV, is the total market value of the cash and securities in the portfolio minus any expenses that the mutual fund owes, divided by the number of shares owned by investors like you. You might pay more than the NAV when you buy shares because of extra sales charges or commissions. A fund recalculates its NAV after the close of every trading day. NAVs change because of portfolio gains and losses, interest from bonds, dividends from stocks, earnings distributions sent to shareholders and any fees taken out by the fund company.
What You Track
Mutual fund tracking programs record a fund's daily price per share. You set them up by telling the program which funds to track -- just type in the mutual fund names or trading symbols, or select the funds from a list. Some programs automatically update every day, while others requires you to request an update. The programs might or might not also track the number of shares you own, but your mutual fund company tracks all that information. If you want, you can put in the number of shares you own and update the number when it changes. By doing this, the tracking program can tell you the new value of your investment every day.The Internet offers a variety of free tracking packages, such as the ones available from Morningstar and USA Today. These packages typically offer graphic features to display your fund’s prices over time in a chart or graph.
Mutual Fund Shares
Mutual funds issue shares to you when you send in money. If you add more money, you get more shares. If you want to take some or all of your money out, the mutual fund company sells some or all of your shares . In return for these services, the fund company charges fees that they deduct each month or each quarter from the pool of investments that it manages. These expenses don't decrease your number of shares but do reduce their value slightly. Mutual funds distribute their profits as cash, which you can reinvest to buy more shares. These distributions lower the price per share. For example, if the share NAV was $10 before a $1 distribution, the new NAV is $9 after the distribution, and you have a dollar in your pocket for each share you own. If you set up automatic reinvestment, the dollar goes back into the fund and buys more shares. Your online account figures should keep track of all this for you.
The cost basis of your mutual fund investment is the amount you paid for the shares you own. If you buy shares in a series of purchases, your cost basis changes, because you put more money in and you own more shares.The mutual fund company keeps track of all your purchases and sales and calculates your new cost basis after each transaction. It's important for the fund to keep track of your cost basis because when you sell shares, any money you make in excess of the cost basis is taxable capital gain.
For fund shares you sell after one year, your taxes on long-term capital gains range from 20 percent to 0 percent, depending on your annual income. If the mutual fund makes a profit by selling some of its stocks and bonds, it sends you a capital gains distribution that also gets taxed at the long-term rates. For shares you sell after owning them for a year or less, the capital gains tax rate is your normal rate -- the tax on the "last dollar" of annual income. That's the same rate you pay for any interest or dividends the mutual fund distributes to you. The mutual fund company must send you forms every January reporting your distributions and capital gains. You use this information to file your tax returns.
Mutual Fund Distributions
A mutual fund distributes virtually all of its income and capital gains at least once a year. These distributions reduce the fund’s NAV. Your cost basis does not change if you take the distributions as cash, but does increase if you choose to reinvest distributions by using the cash to buy more mutual fund shares. Tracking software automatically adjusts NAVs properly to reflect the effect of distributions.
- InvestingAnswers: Net Asset Value
- USAA: Understanding Cost Basis
- USA Today: Track Your Stocks and Funds in Real Time, Free
- Standard & Poor’s: Net Asset Value, Fund Distributions, and Total Return
- IRS. "Mutual Funds (Costs, Distributions, etc.)." Accessed June 28, 2020.
- U.S. Securities and Exchange Commission. "Net Asset Value." Accessed June 28, 2020.
- U.S. Securities and Exchange Commission. "Wash Sales." Accessed June 28, 2020
Eric Bank is a senior business, finance and real estate writer, freelancing since 2002. He has written thousands of articles about business, finance, insurance, real estate, investing, annuities, taxes, credit repair, accounting and student loans. Eric writes articles, blogs and SEO-friendly website content for dozens of clients worldwide, including get.com, badcredit.org and valuepenguin.com. Eric holds two Master's Degrees -- in Business Administration and in Finance. His website is ericbank.com.