Return of principal occurs when a company pays a dividend even after accumulated dividends exceed accumulated profits.  Return of principal is similar to return of capital in its effect on a portfolio, except that it is usually associated with return of all or part of the original investment in connection with fixed income type investments.

 

Return of capital and return of principal are generally not taxed, but result in a decrease in taxable cost basis.  In Captools/net, the ROC, RCR, and RCW transaction codes are used to record return of capital and return of principal transactions, depending, respectively, whether the amount is credited to cash, reinvested or withdrawn from the portfolio. See Return of Capital for more details on handling this in a portfolio.