Mutual Fund Investors: Be Prepared For Your Tax Bite

Contributed by mm | October 15, 2006 2:51 AM PST

WSJ tax columnist Eleanor Laise and TomHerman reported that several firms are subject to singificant capital gains payout this year, and investors should think twice before making a late-year purchase.

From WSJ:

Investors who put money in these funds just before the distribution will, in effect, get back some of their own money -- and then have to pay taxes on it, if they're investing for a taxable account. Investors who opted to reinvest their dividends will not receive a check, but will still be subject to a tax hit.

...

Among the fund families that say they're likely to pay larger distributions this year are T. Rowe Price Group Inc., Capital Research & Management Co.'s American Funds, MassMutual Financial Group's OppenheimerFunds and Janus Capital Group Inc.

The funds most likely to pay sizable distributions include those that have enjoyed some of the strongest returns in recent years, such as foreign-stock, natural-resources and "value" funds -- those that buy stocks that look cheap compared with their earnings or assets.

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