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From: boucher@hsi.UUCP (Keith Boucher)
Newsgroups: net.invest
Subject: Re: Mutual fund switching: Beware!
Message-ID: <325@hsi.UUCP>
Date: Mon, 10-Mar-86 13:53:59 EST
Article-I.D.: hsi.325
Posted: Mon Mar 10 13:53:59 1986
Date-Received: Thu, 13-Mar-86 07:57:30 EST
References: <2019@uwmacc.UUCP>
Distribution: net
Organization: Health Systems Int., New Haven, CT.
Lines: 25

> I've seen several postings talking about mutual funds that
> are actually a family of funds, which allow switching money
> from fund to fund, with just a phone call, with no load, etc.
> It's my understanding that the IRS considers each such switch
> a sale and a purchase, exposing you to capital gains taxation
> on each switch.  If true, this would seriously erode the
> advantage such switches would offer in getting your money in
> the right fund at the right time.  Comments?
> 
> -- 
> 	Jeff Percival ...!uwvax!uwmacc!jwp

The IRS does indeed consider a switch to be a sale and a purchase and
therefore you have to pay tax on any capital gains from the sale. Of
course, you can also write off any loss from the sale.  The key is whether
the capital gains (or losses) are short term or long term.  You are better
off tax wise if the capital gains are long term and the capital losses are
short term.

Frequent switching would cause any capital gains to be short term and thus
taxable as ordinary income.  Therefore switching funds would have to take
this into account.  Of course, tax consequences are not the only thing
to consider when switching investments.

				Keith Boucher HSI New Haven, CT