Do a hedge and mutual funds have to pay income and capital gains taxes on its investments?
April 14th, 2010
If the fund makes a trade does it have to pay the taxes or does the investor pay taxes after they make a withdrawl from the fund? Or is it both? Same with Mutual Funds? If these funds don’t have to pay taxes on their trades, this seems like a HUGE advantage compared to the average investor.
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Mutual funds are required to distribute substantially all of their gains to their shareholders. The gains are taxable to the shareholders in the year that they are distributed. In reality, the fund does not have an advantage. They’re not taxed on the gains, but they don’t get to keep them either.
Mutual funds make their money from management fees and, for some, sales commissions. They don’t directly profit from capital gains.
the investors pay the taxes.
Taxes are paid by shareholders
The capital gains are distributed to the investors proportionally and they have to pay taxes on tthem.