What does the recently enacted law on mutual funds investing in MLPs mean?
The new provision adds net income derived from an interest in a publicly traded partnership (PTP, i.e., an MLP) to the list of mutual fund qualified income. To maintain its special tax status as a regulated investment company (RIC), a mutual fund must derive at least 90% of its income from qualified sources. As a result of this provision, RICs may now invest freely in PTPs as long as such investments do not constitute more than 25% of their assets, and as long as they do not own more than 10% of any one PTP. Under the previous law, income from PTPs was considered “nonqualifying” and could not exceed 10% of the mutual fund’s income. For more information, please see: THE NEW LAW ON MUTUAL FUND INVESTMENT IN MLPS prepared by the Coalition of Publicly Traded Partnerships.