I'm asking as a layperson, since NEOS has been making its rounds in the news after being roped into Goldman Sachs, I got a question from someone at work about how SPYI works and what magic beans they sow to make it so tax efficient and still get 10-12% yield every ~~month~~ year.
I couldn't explain the "Return of Capital" part. The 60/40 long vs short term capital gains (return ON capital), I told them was just making sure the yield they'd get is mostly long term - 15% taxed in their case.
But I was struggling with the Return OF Capital designation. NEOS' structure designates most as Return on capital and that's not taxed until you sell.... right?
Are we just giving NEOS a bunch of money and letting them use it for covered calls in exchange for a neat 10-12% yield and at some point, they just give us our own money back?
Would love to have an ELI5 explanation on NEOS' CC funds.