Pipeline Theory

AAA

DEFINITION of 'Pipeline Theory'

A notion that an investment firm that passes all capital gains, interest and dividends on to its customers/shareholders shouldn't be levied at the corporate level like most regular companies are.

Also referred to as "conduit theory".

INVESTOPEDIA EXPLAINS 'Pipeline Theory'

According to pipeline theory, the investment firm passes income directly to the investors, who are then taxed as individuals. This means that investors are taxed once on the income, whereas in regular companies investors are taxed twice: when the company reports income (at the corporate level) and when dividends are received (as individual income). Pipeline theory would apply to mutual fund companies and real estate investment trusts (REITs).

RELATED TERMS
  1. Income Tax

    A tax that governments impose on financial income generated by ...
  2. Conduit Theory

    A theory stating that an investment firm that passes all capital ...
  3. Pipeline

    1) An investment company whose purpose is to collect investment ...
  4. Investment Company

    A corporation or trust engaged in the business of investing the ...
  5. Investment Vehicle

    A product used by investors with the intention of having positive ...
  6. Corporate Tax

    A levy placed on the profit of a firm, with different rates used ...
RELATED FAQS
  1. What is the double taxation of dividends?

    After all is said and done, companies that have made a profit can do one of two things with the excess cash. They can (1) ... Read Full Answer >>
  2. How big is the derivatives market?

    The derivatives market is, in a word, gigantic, often estimated at more that $1.2 quadrillion. Some market analysts estimate ... Read Full Answer >>
  3. What are the main segments of the real estate sector?

    The main segments of the real estate sector are residential real estate, commercial real estate and industrial real estate. ... Read Full Answer >>
  4. What does the notional principal of a derivative contract refer to?

    The notional principal amount of a derivative refers to the nominal, or predetermined, value used to calculate payments made ... Read Full Answer >>
  5. What mutual funds can be used for investing in the industrial sector?

    The industrial goods sector provides investors access to companies that engage in activities such as aerospace and defense, ... Read Full Answer >>
  6. What is the difference between a custodian bank and a mutual fund custodian?

    Custodian banks and mutual fund custodians, commonly known as mutual fund corporations, perform very similar roles for different ... Read Full Answer >>
Related Articles
  1. Taxes

    After-Tax Balance Rules For Retirement Accounts

    Accumulating post-tax assets can work to your advantage. Find out how.
  2. Professionals

    Alternatives Need More Education, Not Enforcement

    While disclosures and investor education need improvement, alternatives provide a valuable way to increase yield and hedge against declines.
  3. Home & Auto

    Buying a Home? The Best Places Share This Feature

    The most lucrative areas to invest in a home are cities where job growth is robust.
  4. Mutual Funds & ETFs

    Mutual Funds or ETFs: Which is Better?

    Trying to decide between a mutual fund or ETF? Here's what you need to know.
  5. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  6. Investing

    Commercial Real Estate: How to Invest Like a Pro

    Investing in commercial real estate can add stability to your portfolio. Here's how to do it.
  7. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  8. Personal Finance

    Commercial Real Estate: How it Works

    The ins and outs of what commercial real estate companies do.
  9. Professionals

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.
  10. Professionals

    A Look at How the Ultra-Wealthy Invest

    Ultra-wealthy investors are cautious this year as they approach the markets. Many target mutual funds and stocks, but most also diversify their portfolios.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center