When a Mutual Fund You Own Buys and Sells Securities

question 66

Multiple Choice

When a mutual fund you own buys and sells securities in its portfolio,

• A)you are responsible for paying taxes on the net gains and losses incurred.
• B)the mutual fund is responsible for paying the taxes before distributing your share of the net gains.
• C)the IRS does not levy taxes on mutual funds.
• D)you have a choice on whether to pay taxes on the gains during the current year,or to pay the taxes over a five-year perioD.When you buy fund shares,a portfolio of stocks already exists,and these stocks are held at either a gain or a loss.In rapidly rising bull markets,you may be buying into mutual funds that have large accumulated gains;if the manager decides to take those gains,you will have to pay the capital gains tax,even though the net asset value of your shares did not change.

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Definitions:

Net Inflow

The total amount of something (such as capital or goods) entering a location minus the amount leaving it.

Services

Intangible activities or benefits that an organization provides to consumers in exchange for money or some other value.

Dollar Rate

The exchange rate of a currency against the US dollar.

British Pounds

The currency of the United Kingdom, officially known as the pound sterling, used across England, Scotland, Wales, and Northern Ireland.