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Calculating Book Value of Mutual Fund after Partial Sell

• How do I calculate a mutual fund’s book value after selling only a portion of units held if I have been using a dollar-cost strategy and investing a set amount of money in the fund regularly? How does this impact my ability to report profit/capital gains? Disclaimer: I am not seeking any input or feedback on my choice of investment/mutual fund management firm. About three years ago, after having run into my RRSP maximum contribution limit and before the advent of Tax Free Savings Accounts, I decided to open up a non-registered ING mutual fund account with the intention of first investing a small lump sum of cash I had accumulated (lets say it was about $2,000) and thereafter automatically purchasing a set value of units (let’s say $200 worth) every month thereafter. ING provides a daily update on my holdings’ market value (ie. provides the number of units held and the unit price) but does not provide a summary book value. I have been calculating that based on my own records since I had the fund and tracking market value versus book value on a very, regular basis (yes – I am one of those people who track my investments on a daily basis!) For our purposes, let’s say a sample version of the data looks like this: July 1, 2007 Purchased $2000 worth of shares @ $10/share (200 shares) - 200 shares held total Book Value: $2,000 Market Value: $2,000 (200 shares x $10/share) Growth: N/A July 15, 2007 Purchased $200 worth of shares @ $9.50/share (21.053 shares) – 221.053 shares held total Book Value: $2,200 Market Value: $2,100 (221.054 & $9.50/share) Growth: -0.455% August 1, 2007 Purchased $200 worth of shares @ $9.00/share 22.222 shares) – 243.275 shares held total Book Value: $2,400 Market Value: $2,189.48 Growth: -8.772% Let’s say I have continued to buy regular amounts of units at market price each month until this month which, for the purposes of this example, would look like this: June 22, 2010 Book Value: $10,000 Market Value: $11,500 Growth: 15% If I were to sell the whole lump sum of units, I understand that I can say that I have made 15% on my investment (I *wish* the real numbers were as bullish as those in my example!) However, what happens if I were to sell only half of the units I own – small chunks (and one larger chunk) of which were all bought at different prices? How would I calculate how much I made off my investment? How would I calculate book value of my remaining units moving forward? Would the bank sell off those units which were oldest first? Those which had the highest profit from their original “buy” price? Also complicating matters is that this a non-registered Canadian mutual fund so, if I make any money off of this sale, I have to pay capital gains tax. How would I report this to the government if I am uncertain as to how much I actually made? Will the bank provide this info? Thanks for your help in advance Mefites!

• Answer:

  I think the concept of http://en.wikipedia.org/wiki/Adjusted_cost_base may be relevant to your situation. http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html is the (not very readable) section on Revenue Canada's website regarding capital gains. Note that this is much different from the IRS guidelines which specifically warn against using an average cost per unit calculation in determining capital gains.