1. What is Average Cost Basis (ACB)?

Average Cost Basis (ACB) is a method used to determine the average cost per unit of mutual fund shares. It calculates the total cost of all shares purchased divided by the total number of shares owned, providing a simplified approach for tracking investment costs and calculating capital gains.

2. How Does the Calculator Work?

The calculator uses the ACB formula:

Where:

• \( ACB \) — Average Cost Basis (currency per unit)
• \( \text{Total Cost} \) — Total investment cost in currency
• \( \text{Total Units} \) — Total number of mutual fund units owned

Explanation: This formula provides the average price paid per unit across all purchases, which is essential for determining capital gains or losses when selling shares.

3. Importance of ACB Calculation

Details: Accurate ACB calculation is crucial for tax reporting, capital gains calculations, and investment performance tracking. It helps investors understand their true cost basis and make informed decisions about when to sell shares.

4. Using the Calculator

Tips: Enter the total cost of all mutual fund purchases in your local currency and the total number of units owned. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: Why is ACB important for mutual fund investors?
A: ACB helps determine the cost basis for tax purposes when selling shares, which is essential for calculating capital gains or losses accurately.

Q2: How does ACB differ from FIFO or specific identification methods?
A: ACB averages all purchase costs, while FIFO uses the cost of the first shares purchased, and specific identification allows choosing which shares to sell.

Q3: When should I update my ACB calculation?
A: Update your ACB after every purchase of additional shares to maintain accurate records for future sales.

Q4: Does ACB include fees and commissions?
A: Yes, the total cost should include all acquisition costs such as brokerage fees, commissions, and other transaction expenses.

Q5: Can ACB be used for all types of investments?
A: While commonly used for mutual funds, ACB can also be applied to stocks and ETFs, though some jurisdictions may have specific rules about which cost basis methods are acceptable.