Learn more about capital gains from mutual funds and potential tax consequences. Read more...
Mutual funds must distribute any dividends and net realized capital gains earned on their holdings over the prior 12 months, and these distributions are taxable income even if the money is reinvested in shares in the fund.
Investors concerned about tax exposure might want to consider investing in tax-efficient equity funds. Such funds typically are managed with an eye toward limiting capital gain distributions, when possible, by keeping holdings turnover low and harvesting losses to offset realized gains.
While tax considerations may play an important role in investment decisions, T. Rowe Price financial planners strongly encourage investors to focus primarily on their long-term financial goals. Making investment decisions based solely on tax considerations could result in expensive mistakes that reduce overall returns.