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Mutual Funds Income Tax

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One among many ways you lose money in non-indexed mutual funds is the tax trap. You may have to pay taxes even when your mutual fund loses money! To many people this is painfully unexpected. Here is how this counter intuitive event occurs. By law, mutual funds do not pay taxes. Instead, they pass on those taxes to you, the shareholder in the mutual fund. If the fund manager sells a stock for more than it cost the fund a profit is generated. This profit is called a capital gain and it is taxable. Capital gains are taxed at your ordinary income tax rate which is between 28% and 38.6% for most investors if the fund held the stock for less than a year. If the stock was held for more than a year, in other words long term, the tax is 20%.

There are a couple of reasons why mutual funds pay taxes. If the fund does poorly investors will bail out. The mutual fund has to sell off stock to pay the investors who leave. Even if you are not one of the investors jumping ship you will still have to pay your portion of the capital gains tax.

Dividends are another reason that taxes come due. Dividends are taxed at the per-share earnings distributions that companies make out of their quarterly earnings. Many investors instruct their mutual fund to automatically reinvest their dividends. This means that the fund uses the money to buy more shares in your name. Even if you reinvest and never get a penny of the dividends, they are subject to tax, according to the IRS.

Another reason you may get a tax bill is due to high turnover. Turnover measures the frequency with which a fund manger buys and sells shares, sometimes in search of the next high-flying stock or undervalued stock on the verge of taking off. According to Lipper, the average fund in 2000 showed a turnover rate of 122%. This means that the entire portfolio changed between January and December, and 22% of the replacement shares changed as well.

This is the ultimate case of account churning! You simply have to understand that when you buy into a fund you are buying into a tax liability. The best way to avoid these taxes altogether is to restrict your purchases of mutual funds to your 401(k) and try to only buy indexed mutual funds such as the Vanguard 500 (FINX).

Mutual Funds Income Tax

Fund Profile

Aim Select Real Estate Income A is a member of the Invesco Aim family of funds and is comprised of 30 stocks holdings and 16 bond holdings.

Fund Performance and Ratings

When it comes to ratings, it really doesn't get much better than Aim Select Real Estate Income A. It currently has a 5-star designation from Morningstar with a low risk and above average to high return expectancy. In 2008, Aim Select Real Estate Income A spent a good portion of the year performing in the top 10% of its field.

Where Does It Invest?

All of the holdings in the Aim Select Real Estate Income A portfolio are in the financial services real estate sector with holdings in both stocks and bonds. The total holdings of the fund are worth 60 million dollars.

Who's in Charge?

Managing Aim Select Real Estate Income A is Paul Curbo. Curbo has been with Invesco since 1998. Aim Select Real Estate Income A is just one of many of the funds in the Invesco family that he manages.

How Does it Choose Investments?

Aim Select Real Estate Income A focuses on value stocks bonds and interests in its portfolio. Over 75% of its stock holdings are in the middle range market and are in the value and blend categories of stocks and bonds.

What's in the Portfolio?

Among the holdings in the Aim Select Real Estate Income A portfolio are Senior Housing Prop Trust, Health Care REIT, Inc., Washington REIT, Liberty Property Trust, Essex Property Trust and Mack-Cali Corporation.

Adding To Your Portfolio

Adding real estate mutual funds, REITs and other real estate investments into your portfolio is simply a matter of wise investing for a couple of reasons. The first reason is that by purchasing into a fund you are purchasing into diversity. Most funds are filled with dozens of real estate interests and real estate related companies. The more diversified your money is, the more secure it is against a bad day or two on the market.

Additionally, many like real estate because it is a more solid market. While there are risks to all markets, real estate mutual funds offer some sense of stability as they are all built on the grounding of a tangible asset ? real estate.

When you are ready to buy, look for a broker that is able to handle your specific needs. In this market that broker is REITBuyer.com. REITBuyer.com is the first and only online brokerage that specializes in REITs and real estate mutual funds. This means not only can they help you buy and sell the real estate mutual funds and REITs you are interested in, but they also are the pros in the field and can offer you the information, research and news you need to make educated and wise investment decisions.

This article was written by Earl E. Bird, spokesperson for the REITbuyer.com, a site dedicated to educating Real Estate Investors on how to invest in Real Estate Mutual Funds to diversify their investing portfolio. Learn more at http://www.reitbuyer.com

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Both Dr. Scott Brown, Ph.d. & Robert Shumake are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Dr. Scott Brown, Ph.d. has sinced written about articles on various topics from Best Mutual Funds, Finances and Car Parts. . Dr. Scott Brown, Ph.d.'s top article generates over 49500 views. to your Favourites.

Robert Shumake has sinced written about articles on various topics from Best Mutual Funds, Property Investment and Best Mutual Funds. Robert Shumake's mission is to inform the public about mortgage fraud and real estate scams and to provide tips on how to avoid being a victim. ?Sometimes people will commit identity theft to obtain a housing loan, sell someone else's house or take over. Robert Shumake's top article generates over 6600 views. to your Favourites.

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