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Higher Capital Gains

Taxation

Will Mutual Funds Have Higher Capital Gains Distributions This Year?

David Dierking Apr 25, 2017




What Are Capital Gains Distributions?


These capital gains distributions are broken down into short-term – positions that the fund has held for less than one year – and get taxed as ordinary income, or long-term – positions that have been held for longer than one year – and get taxed at the lower capital gains rate.

For more information on capital gains distributions, take a look at our article on What Are Mutual Fund Distributions.


Why the Big Capital Gains Distributions?


With our Dividend Reinvestment Calculator, find out how much you can make investing in dividend-paying stocks.


Strategies to Avoid Unnecessary Tax Bills


It’s best to try to avoid making large purchases of a mutual fund’s shares just prior to the distribution date. Buying in right before a large distribution creates a tax bill for a gain that you didn’t get to experience.


Funds That Could Make Large Capital Gains Distributions


Here are four funds that may be in line for big distributions. Click on the ticker for more information on the capital gains distribution analysis offered for each fund.

  • Fidelity Contrafund (FCNTX) – This fund is one of the biggest and most storied funds in the industry, but lately it’s been walloping shareholders with distributions. The fund has distributed more than $8 per share in capital gains distributions over the past two years.
  • Buffalo Small Cap (BUFSX) – This might be one of the most tax-inefficient funds around. It has made a capital gains distribution of over $3 per share in each of the past four years, including a mind-boggling $12 per share distribution in 2015.
  • American Funds Washington Mutual (AWSHX) – This six-decades-old Washington fund has delivered strong returns for shareholders, but lately it’s been delivering tax hits too. Over the past three years, the fund has averaged a capital gains distribution of 4% to 5% of its share price.
  • Vanguard Explorer (VEXPX) – Since 2013, this fund has distributed more than $36 per share in total capital gains.

In addition to mutual funds, ETFs provide distributions; check out our article on ETF Distributions and Capital Gains.


The Bottom Line


To learn more about how mutual fund distributions are taxed, check out the Taxation section on our website.

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