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In the case of mutual funds, the individual investors are all subject to capital gains (or losses) whenever the fund sells any shares. Even if the investor hasn
by oarsinsync 8y ago
In the case of mutual funds, the individual investors are all subject to capital gains (or losses) whenever the fund sells any shares. Even if the investor hasn’t divested any money from the fund.
This loophole now results in investors only being subject to taxation when they actually sell their stake in the fund. IE the same way as how ETFs are designed to work.
Alternatives result in double taxation, which means it’s the investor that pays twice anyway - the fund will just add the costs of being taxed itself into the value of the fund, and then the investor will pay a second time when they divest from the fund.
- mcherm 8y ago> This loophole now results in investors only being subject to taxation when they actually sell their stake in the fund. IE the same way as how ETFs are designed to work. Your phrasing is slightly misleading. The only reason under tax law that EFTs are taxed this way is because EFTs have always used this same tax dodge. So it's not as if Vanguard has patented (and used) a legal loophole for getting EFT tax treatment on a mutual fund, it is that Vanguard has patented (and used) the same loophole for their mutual fund that everyone uses for their EFTs.
- C1sc0cat 8y agoNot really a tax dodge its the way investment trusts have worked for over a hundred years - and they helped build America :-)