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From: alan@mtxinu.UUCP (Alan Tobey)
Newsgroups: net.invest
Subject: Re: Mutual fund switching: Beware!
Message-ID: <545@mtxinu.UUCP>
Date: Tue, 11-Mar-86 15:34:21 EST
Article-I.D.: mtxinu.545
Posted: Tue Mar 11 15:34:21 1986
Date-Received: Sat, 15-Mar-86 22:24:14 EST
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> > 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.

It's worth noting that some mutual funds get around this disadvantage by
restricting their investors to using IRA funds.  Since all IRA withdrawals
are taxed as ordinary income, the fund managers are presumably free to
buy and sell without being restrained by capital-gains timing.  It remains
to be seen if this produces better results;  the one I've been in (Fidelity
Freedom) has done about as well as a good traditional growth fund like Fidelity
Magellan over the past year.