Prepare for Capital Gains Distributions in Equity Mutual Funds

With many funds delivering capital-gains dividends next month, you could expect some significant tax consequences in your stock mutual fund holdings this year.

Morningstar strategist Christopher Franz and analyst Anthony Thorn stated in a study last week that “capital-gains season is approaching for mutual fund investors.”

“It’ll be another good news/bad news era.” In 2021, most actively managed stock funds saw substantial absolute gains.

“However, many of them expect their year-end payouts to fundholders to range from the high single digits to the double digits as a percentage of net asset value.”

“For investors who store their funds in taxable accounts, the taxes due on those rewards could be the thorn in the side of an otherwise successful year.”

“The continuous trend of investors shifting out traditional active vehicles for… passive vehicles has pushed many managers to realise gains to rebalance their portfolios and fulfil redemptions,” Franz and Thorn stated.

As of October, the average U.S. stock fund had gained 21.1 percent, while the usual non-U.S. strategy had gained 9.6 percent.

According to Franz and Thorn, fund companies have begun releasing distribution projections on their websites, and most will issue rewards in early to mid-December.

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