Mutual Fund Fees

Never pick a fund just because it has low fees. Lots of under-performing funds have low fees.

How Funds Distribute Capital Gains and Dividends

Once a year, late October through early December for most funds, the gains and dividends that the fund has earned are physically distributed to investors.

If you have elected not to automatically reinvest for additional shares, the fund will mail you a check.

The NAV price will fall on that day by the amount of the distribution, plus or minus any changes in the value of the fund’s portfolio on that day.

The date that this taxable distribution is done is called the record date since the money goes to the owner of record on this day, and the following day is called the ex-dividend date (sometimes called the re-investment date). There is also another date, the payout date that checks are actually mailed. You can see why even many financial advisors get these terms confused.

When you buy mutual fund shares close to the record date, you’re going to owe taxes on profits that you didn’t participate in. You should avoid this extra tax bite.

You can find this date in recent mailings from the fund, at their web site, or by calling their toll-free number.

Paying taxes even though you lost money

This may sound strange, but you may receive a taxable distribution even though your fund lost money. This would be from dividends, and also any short-term gains that exceed long term gains left over after subtracting long term losses (don’t you hate all this confusing tax stuff?).

In plain English … who do I think I’m kidding, there’s no simple way to explain this, it just happens, okay? In the year 2000:

• Apex Mid Cap lost 76% but passed on 22% in capital gains – investors owed taxes on $220 of every $1,000 they had in the fund before the big loss!

• UAM Sterling Partners was up less than 1%, but had a whopping 95% taxable distribution – investors paid taxes on almost their entire investment, even though they didn’t make any money!

• Standish Small Cap Equity was down 19%, but had a 65% taxable distribution – investors lost a fifth of their money, but had to pay taxes on $650 of every $1,000 they had in the fund

This is crazy, but it really happens if your fund has a high turnover in its holdings or makes tax-insensitive choices.

Other Stock Market Basics Topics:

1. Mutual Fund Advantages
2. History of Mutual Funds
3. NAV
4. Dollar Cost Averaging
5. General advice about choosing a fund
6. Mutual Fund Ratings
7. Evaluating Mutual Fund Investment Risk
8. Mutual Fund Share Classes
9. Mutual Fund Fees
10. The Mutual Fund Prospectus
11. How important is the manager's length of experience?
12. Why is the prospectus hard to understand?
13. Mutual Fund Annual Report
14. Comparing your fund to the competition
15. Comparing funds on an after-tax basis
16. Average Return on Investment
17. How Not to Pick a Mutual Fund
18. Cashing in Your Fund
19. When to Sell Your Fund
20. Mutual Funds and Asset Allocation
21. When to get started with a mutual fund
22. Types of Mutual Funds
23. Value Stock Funds
24. Growth Stock Funds
25. Small and Micro-cap Stocks
26. Mid Cap
27. Large Cap Companies
28. Income Stock Funds
29. Mutual Fund Index
30. Enhanced Index Funds
31. Sector Mutual Funds
32. Stock Market Sectors
33. Defensive Stocks
34. International Funds
35. Real Estate Mutual Funds
36. Socially Responsible Funds
37. Balanced Funds
38. Tax-Efficient Funds
39. Bond Convertible Funds
40. Junk Bond Funds
41. Mixtures of stock types
42. Closed End Funds
43. Exchange Traded Funds (ETF’s)
44. Stock Picking Strategy - Picking your own stocks?
45. Fund names, and what they really invest in
46. How to get started
47. Where can I start investing with no money?
    

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