Investors beware. The mutual fund industry is gearing up to deliver the largest tax distribution in six years, the third-largest ever, USA Today reports.
Funds will pay out an estimated $200 billion in capital gains and income to investors, up from $129 billion last year. Fund investors will pay about $20 billion in taxes this year, up from $15.2 billion in 2005, Lipper estimates.
A fund tallies up the gains and losses on its trades throughout the year. If it has more gains than losses, the fund must distribute those gains to shareholders. A fund must also distribute any income it receives, such as dividends from stocks.
Investors get served with the distribution whether they bought the fund last month or if they invest now. One reason distributions are up is that it’s been a good year in the stock market, noted Tom Roseen, an analyst with Lipper. As the stock market climbs, so do taxable gains payouts.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.