Regulated Investment Company - RIC


DEFINITION of 'Regulated Investment Company - RIC'

A mutual fund, real estate investment trust (REIT) or unit investment trust (UIT) that is eligible to pass the taxes on capital gains, dividends or interest earned on fund investments, directly to clients or individual investors. A regulated investment company is qualified under Regulation M of the Internal Revenue Service (IRS) to pass taxes onto investors to be taxed at the individual level.

BREAKING DOWN 'Regulated Investment Company - RIC'

The process is designed to avoid double taxation, whereby both the company and individual investors would be taxed. This is called the "conduit theory," since the investment company acts as a conduit for all capital gains, dividends and interest to be passed onto shareholders. Without Regulation M, the investment company would be required to pay taxes on the capital gains, and the individual investors would also be required to pay taxes on their earnings as well.

A fund or trust must meet certain requirements in order to qualify as a regulated investment company. For instance, at least 90% of its income must come from its investments as capital gains, dividends and interest. Also, it must have at least a 90% distribution of interest and dividends earned on investments (less expenses) and 90% distribution of capital gains net income. Regulated investment companies are required to distribute 98% of net investment income to avoid paying a 4% excise tax.

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