Return of capital in distributions

Fund distributions are classified into net investment income, realised capital gains (short- and long-term) and return of capital (ROC). ROC is the part of a distribution not covered by income or realised gains for the period.

Two different meanings

For tax purposes ROC is generally not taxed when received; it reduces the shareholder's cost basis. For accounting purposes ROC simply means the fund distributed more than it earned on the books in that period. The two definitions do not always line up, and a fund's preliminary Section 19(a) notices are estimates that are superseded by the final tax characterisation after year-end.

Destructive or not?

ROC is destructive when a fund pays out capital while its NAV falls — it is returning shareholders' own money and shrinking the asset base. It can be non-destructive when the fund has unrealised gains it has not yet booked, or when an option-writing or total-return strategy generates cash that accounting does not classify as income. The test is whether NAV is holding up after distributions over a reasonable period, not the label alone. This site therefore shows composition next to NAV history and does not stamp funds with good/bad badges.