Income from Unit Trust: Distributions and Capital Gains

There are two types of income: potentialdistributions and capital gains. Unit trusts invest in a variety of securities, including stocks, bonds, and/or money market instruments.*

When these securities pay interest or dividends, the fund is required to pass them along to its unit holders (less a portion of the costs of managing the fund).

A bond fund, for example, buys bonds that pay interest, which the fund then passes on to you in the form of a dividend.

Fund distributions also include capital gains realized by the fund when it sells portfolio holdings.

The difference between what was paid for a security and what it sells for is a capital gain or loss. Short-term capital gains (on securities held by the fund for 12 months or less) are typically passed on to unitholders as a dividend distribution.

Long-term capital gains are reported separately as capital gains distributions. You can calculate a fund’s yield by dividing its current NAV by the amount of distributions per share.