Toronto-based CIBC Asset Management Inc. intends to keep one of its capital yield mutual funds open despite its use of character conversion transactions, the company announced on Tuesday.
The Renaissance Corporate Bond Capital Yield Fund employs forward contracts to convert ordinary income into a capital gain, creating a tax benefit for investors. The federal government proposed eliminating the use of such strategies in the 2013 budget released in March.
As a result, earlier this month the Ontario Securities Commission recommended that fund managers consider capping funds affected by the government’s proposed changes and many have done so.
CIBC on the other hand, will keep this particular capital yield fund open without the tax beneift because it “has been one of the strongest fixed income funds in Canada, independent of the tax structure,” the firm stated in a press release.
The government has granted a 180-day transition period in which the fund will continue to benefit from the derivatives strategy, according to CIBC. After that time the fund will continue to follow its investment mandate without the tax advantage.