One of the important aspects of investing is the impact of tax consequences. When investors sell stocks and funds for profit, they are likely aware that these transactions create taxable events. However, they might not be often aware that fund managers also realize capital gains, which are passed on to investors. This means investors are taxed multiple times from the same fund: when they sell it for gains, and when the manager sells stocks within the fund for gains.
This risk for the increased tax burden arises notably from closed-end mutual funds (henceforth referred to as mutual funds), which are portfolios of stocks which could number in thousands. They settle at the end of each trading day, and the fund company is responsible for managing the buying and selling of stocks within the funds.
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The Well Tempered Investor 