Do I need to sell my mutual fund to capture its gain?December 17, 2012: 6:31 AM ET
My U.S. stock mutual fund has risen in value by 20% this year. I want to be sure to capture that 20% gain. Will the mutual fund's year-end capital gains distribution capture that 20% gain, or do I have to sell the mutual fund shares to do so? — Paul K.
You have to sell your fund shares to capture that gain. Your fund realizes its own capital gains and losses when it sells stocks during the year, according to Anna Sergunina of San Mateo, Calif.-based Mainstreet Financial Planning. The net proceeds from those internal stock sales make up the year-end capital gains distributions to fund investors that are disclosed in 1099 forms. Those distributions will likely carry their own tax liability.
But those distributions are already factored in to the share price of the fund. So to capture — or realize — the 20% gain in price of your mutual fund shares, you need to sell your shares. The treatment of the gain for tax purposes will depend on when and for how much you purchased the fund shares.
— Austin Kilham
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