![]() Mutual funds that seek to track major indexes-like the S&P 500-tend to have low turnover since the securities they own aren’t changed frequently. Lower turnover can help reduce the potential for the fund to realize short-term capital gains. ![]() A fund’s turnover tells you roughly what percentage of its portfolio has changed over the past year. There’s a way to gauge if a fund is less likely to generate short-term gains: turnover. Some mutual funds can use long-term investment strategies to minimize the impact of short-term capital gains on the fund’s shareholders, compared to other funds that trade more frequently. As you probably know, short-term capital gains are generally taxed at higher rates than long-term capital gains (and sales of precious metals have their own tax treatment). ![]() Let’s look at three common questions that investors ask when thinking about mutual funds and taxes. Capital gains distributions for a given tax year typically happen in November or December, and they can impact you even if you did not redeem any fund shares yourself. That means raising cash to pay shareholders who decide to redeem their shares and take money out of the fund. But managers can also be forced to sell securities in order to cover outflows. Why do fund managers sell assets? Securities are usually sold in the normal course of pursuing the fund’s investing strategy. Mutual fund shareholders may incur taxes on any dividends and interest income distributed by the fund, and also on any distributed or undistributed capital gains, which result from the mutual fund manager selling certain fund assets for a profit. For these accounts, you only pay taxes when pre-tax contributions or earnings are withdrawn (with some relatively rare exceptions).īut for investments held in other types of accounts, it can be a different story. If you’re buying mutual funds for a tax-advantaged college savings account or retirement account such as an IRA or 401(k), it’s typically not an issue. But what about taxes? How much should they impact your decision?įirst, it depends on what type of account you have. When you’re researching mutual funds for your portfolio, it’s important to look at several factors, including the fund’s investment objective, track record, and risk level.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |