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Mutual Fund Converted to ETF

Bill Haas

A Fidelity International Index Fund was recently converted to an ETF. I have a couple of questions regarding how to record this transaction.

Auto update picked the new ETF as a new security. Do I accept the new security (symbol and name)?
What's the best way to record this transaction? The number of shares and price changed but the total account value remained the same.
Do I record this as a sale of the Mutual Fund (sold) and a Purchase of the ETF (bought)?

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Comments

Tom Young

Typically these conversions are tax free, which means your basis and holding period carry over to the new security. I that's the case here then a Sell and Buy is exactly the wrong way to do this as 1) it can create capital gain or loss and 2) the new security takes on a new basis and a new holding period.

One way of handling this in Quicken is to use the "Corporate Acquisition (stock for stock)" action. That results in a tax-free transformation from the old security to the new security with holding period and basis preserved.

q_lurker

I recommend taking manual action in your Quicken file before accepting downloaded transactions from your financial institution. The download is likely to omit cost basis and per lot information.

I have used both Corporate Acquisition and Mutual Fund Conversion for these type of events. I believe MF Conversion still has a bug if you have uses Average Cosr for the fund security in Quicken.

There are differences in how the two operations foe, but the end results should be (very close to) the same.

The MF Conversion will be applied only in the account you are in when making the entry. The Corporate Acquisition will get applied within all accounts holding that fund.
The MF Conversion takes the number of new shares as user input from which it computes a share ratio. The CA takes share ratio as the user input. The MFC may get a slightly more accurate ratio than the user can enter.
Both actions generate one Remove Shares and Add Shares for each lot held. I suggest editing the number of shares in each generated Add Share transaction such that the precision matches that used by your Financial Institution, typically three to four decimal places.