Money Market Fund: Understanding book value vs market value
Why is my book value higher than my market value? Learn what the terms mean and why the amounts differ.
Updated 
2 min. read
With more investors making use of the Money Market Fund inside the BMO Guaranteed Investment Funds product, from time to time we’re asked questions about the way that interest distributions are reflected on your client statement and why your book value may be higher than your market value.
What is the book value?
The book value of a fund as reported on your statement is the amount deposited into that fund plus the total amount of any distributions made from that fund minus any withdrawals.
Distributions increase the book value, so in a fund like the Money Market Fund which earns regular distributions, the book value will increase over time.
Why do distributions increase the book value?
Distributions increase the book value to avoid double taxation. When interest is distributed in a non-registered account, the distributions are captured on your T3 slip. When your units are eventually redeemed, the taxable gain or loss is calculated by subtracting the book value from the market value. If the book value did not increase by the amount of the distributions, your distributions would effectively be taxed a second time as a capital gain, when you redeem units. Increasing the book value by the amount of the distribution ensures you avoid double taxation.
If my book value is greater than my market value, did I lose money?
Not at all! Remember, the book value increases as distributions are paid. The market value also increases, but by a smaller amount due to the Management Expense Ratio (MER). As a result, your book value will naturally surpass your market value.
This means that over time, comparing the book value and the market value becomes an inaccurate way to measure your total investment return. It can create the illusion that you’re losing money in the Money Market Fund. To get a more accurate picture, compare your market value to the total amount of your purchases and transfers into the Money Market Fund (adjusted for redemptions) instead of comparing to the book value.
For more information about BMO Insurance or our products, please consult with your advisor or visit us online.
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