Mutual Fund Capital Gains Reach Low Point

Many mutual fund shareholders were pleasantly surprised in April by plentiful embedded losses in their investments. Capital gains paid by mutual funds slumped in 2003 to an estimated $14 billion, the lowest level since 1990, according to a study by the Investment Company Institute. Flagging capital gain payments are the result of previous back-to-back bear market years in which funds racked up sizeable losses.
Nearly one-third of the capital gains recorded last year were paid to fund domiciled inside tax-deferred investment vehicles, such as 401(k) plans, according the report. The lengthy bear market also contributed reduced levels of capital gains payments totaling $16 billion in 2002, which dramatically trailed a record $326 billion in 2000.
The news comes as pleasant surprise at tax time for investors who are able to realize embedded losses from funds in non-qualified accounts. Stock funds collectively logged embedded losses totaling 4% of their assets, according to the report.