What's the proper way to enter the following transactions? (Mutual Fund exchange)

LeaningTower

This probably should be easy, but I'm drawing a blank.

The fund administrator for a retirement fund (401a) decided to change a few of our funds. For example, they eliminated Widget Mid Cap fund investor shares and replaced it with Widget Mid Cap advisor shares.

What is the proper way to enter these transactions (i.e. SOLD/BOUGHT, REMOVED/ADDED, etc etc)? The method I use should not result in a taxable event or realized gain. The dollar value of the positions did not change. However, I'm not sure if the number of shares in, and share price of, the replacement funds match the predecessor funds.

Thanks again! (in advance)

q_lurker

That is typically a Mutual Fund Conversion. Use the enter transactions button to initiate the process. Program will generate Remove Shares and a set of Add Shares. Prior to that, make sure the security is not set to use average cost (due to a bug when MF Conversion is then used).

LeaningTower

One of the three funds that I have to change is set for average cost. Can I simply uncheck the box for avg cost?

LeaningTower

Is conversion the most appropriate method? This isn't a case of the fund family changing an existing fund. The plan administrator is replacing one existing fund with another existing (albeit, similar) fund.

Jim_Harman

If it is a different share class of the same fund as in your example, you should enter it by clicking on Enter transactions and selecting Mutual Fund Conversion. You will need to know the number of shares of the new security you received.

That will preserve your cost basis and holding periods, but that is not really necessary for a retirement account.

If it is a different security, you can enter it as Sold and Bought.

Tom Young

"Is conversion the most appropriate method?"

I'd say "yes." Each share class of a mutual fund will have a different CUSIP number and the Mutual Fund Conversion action accomplishes that change for you. A simple name change of the original fund won't do that and Quicken uses that CUSIP as the identifier of the security in many situations.

NotACPA

The Cost Basis and Holding Period, while not needed for tax purposes, IS NEEDED for investment performance monitoring.

Jim_Harman

The Cost Basis and Holding Period, while not needed for tax purposes, IS NEEDED for investment performance monitoring.

I don't think that is true if we are talking about the Investment Performance report or the equivalent Avg. Annual Return (%) columns in the Portfolio views, if you include both the old and new securities in the analysis.

For example, you could sell a security at a gain or loss and buy it back at the same price on the the same day. The cost basis and holding periods would be reset but the IRR calculation is not affected.

LeaningTower

Thanks everyone for your input.

I reviewed them in my acct online in preparation for entering the changes into Q. The share price of each of the new securities is different from the original (from $0.10 - $0.50 per share) and the quantity of shares is also different (anywhere from 0.5 shares to 4 shares).

If I use the Mutual Fund conversion function (as is the consensus), what is the most appropriate way to make the adjustment to the # of shares. (I presume the price adjustment is as simple as manually entering the new price.)

Tom Young

Why don't you provide the exact names of the two funds involved? Generic "Company A" and "Company B" questions can be completely impossible to answer because there's really no "cookbook", "one size fits all" answers to even the simplest transactions where two different companies/funds are involved. There just isn't. Your original post suggested the conversion was between share classes of the same fund, but that's not necessarily accurate.

One very obvious answer to your conundrum is that the conversion DIDN'T involve a perfect one-share for one-share conversion and per share prices that happened to be EXACTLY the same on the conversion date. Maybe, instead, for each one share tendered you received 1.09786 shares of the other fund and the two per share fund prices were different. In that case old lots and "new" lots would look completely different, other than the total cost basis, with a different number of shares between lots, a different total number of shares, and a total cost basis for all lots being the same. Even presumably simple changes in share classes - where you might expect the trade would be 1 for 1 - can present these sorts of problems.

NotACPA

Does the fund hold fractional shares? Or, perhaps, were the fractions NOT issued and instead you received "Cash in Lieu"?

Also, if you'd tell us the actual securities involved it would make things a LOT easier for us. We'd also need the conversion ratio/

LeaningTower

Here's one fund that was traded or converted or… whatever:

(These are the transactions the fund adminstrator sent in the QFX file)

Trade date: 4/29/22

SOLD Artisan Intl Fund (investors shrs) ARTIX 24.609926shrs at 120..772, total $2972.19

BOUGHT artisan intl fund (advisor class) APDIX 24.519985 shrs at 121.215, total $2972.19

Hopefully, the answer to the transaction on this fund will be applicable to the other two funds. If necessary, I can provide details on the other 2 funds.

NotACPA

That's NOT a simple conversion ratio. And since this is a Retirement acct, Cap Gains/Loss don't matter. The nature of the account will keep this combination from appearing in Q's tax reports.

SO, I'd just go with what was downloaded.

Tom Young

As @NotACPA points out, what was downloaded to you was the sale of one security and the purchase of a different security, not a conversion. Accordingly, all the details (lots) of the Artisan Intl Fund investor shares are in effect "gone" to be replaced by one lot of Artisan Intl Fund advisor shares. Any capital gain or loss that "sale" might have created will not show up in a Capital Gains report as Quicken excludes tax deferred Accounts from that report. So one approach, as suggested, is to leave things as they are. However, any Spending Report that includes those tax deferred Accounts will include that capital gain or loss as these reports are GAAP oriented, not Statutory (Fed Income Tax) oriented.

If you don't want to have that capital gain or loss showing up and/or want to keep the lot-level details intact, then this is the place where the Mutual Fund Conversion action would be appropriate.

This would be a Mutual Fund Conversion where you received 0.996345336 shares of the advisor class for each 1 share of the investor class tendered. Quicken should create one Removed action for the old shares and however many Added actions needed to come to the same number of lots as the old shares. Overall the total shares of the new class should be 24.519985 with a combined basis of $2,972.19.

q_lurker

Note that the MF conversion process asks for the number of new shares received, not the conversion ratio. Thus you would provide the 24.519985 as the number of shares received. Quicken 'knows' how many shares you have of the existing fund and will then compute the ratio as needed.

I would choose to delete the downloaded Sale and Buy and use the MF Conversion and ensuing Remove Shares and Add Shares instead - even for a retirement account. I believe that represents the more accurate representation of real-world actions. While you ask about the "proper way", the reality is that user choice is the ultimate deciding factor.

[SIDEBAR: I never try to maintain share counts to 6-decimal place precision. I believe it just leads to miniscule rounding discrepancies that later cause issues. I am surprised your FI seems to go the that level of precision. That may dictate you follow their lead.]