Mutual funds sold in the United States are required to pay out all capital gains at least once per year. For investors in taxable accounts, this is worth noting, as the payouts can trigger tax liability.

Open-ended funds, on the other hand, pay out dividends and capital gains each year to all shareholders, regardless of the date on which the shareholder bought into the fund. This can result, for example, in an investor buying into a fund in November, but owing capital gains tax on gains that were realized in March. Even though the investor didn't own the fund in March, tax liability is shared among all investors on a yearly basis.

For investors in 401(k) and other tax-deferred retirement savings vehicles, taxes are paid only when the investments are redeemed, making the yearly payout of capital gains an issue of little concern.

Related Reading:

Exchange-Traded Funds

Related Articles
  1. Investing

    How Mutual Funds Are Taxed in the U.S.

    A look at how mutual funds are taxed and how investors can be more tax efficient.
  2. Taxes

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  3. Managing Wealth

    Understanding the Capital Gains Tax

    A capital gains tax is imposed on the profits realized when an investor or corporation sells an asset for a higher price than its purchase price.
  4. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  5. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  6. Financial Advisor

    Tax-Efficient Investing: Keep More Earned Money

    You can improve investment returns by applying year-round strategies to minimize your tax burden. Here are a few tips.
  7. Taxes

    Comparing Long-Term vs. Short-Term Capital Gain Tax Rates

    Learn about the difference between short- and long-term capital gains and how the duration of your investment can impact your tax liability.
  8. Taxes

    How Are Capital Gains And Dividends Taxed Differently?

    Individuals in the 25% or higher tax bracket pay a 20% tax on long-term capital gains.
  9. Taxes

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
  10. Investing

    7 Year-End Tax Planning Strategies

    Do you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center