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Frequently Asked Questions (FAQs) on Mutual Funds
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Where can I get comparative information on mutual funds?
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How does buying funds directly compare with buying through a broker?
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What does family of funds do compared to a single fund?
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What are the tax implications of mutual funds for individuals?
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What dates are important when investing in mutual funds?
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How do I put mutual funds in an IRA?
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Where can I
get comparative information on mutual funds?
Brokers and financial advisors offer information, but they usually give
information only on load funds. However, many periodicals have regular mutual
fund review issues: Business Week (Feb.),
Forbes (Sept.) , Money Magazine (Nov.), Fortune (fall),
Barron's (quarterly), Consumer Reports, Wall Street Journal, Investors
Business Daily, Morningstar Mutual Fund Report and Value Line Mutual Fund
Survey.
In addition, there are many books available on mutual fund investing.
Different periodicals and books use different criteria to rate funds. These
periodicals and books usually have phone numbers which you can call to get the
fund's prospectus and other information. Note that some ratings account for
loads, while others do not. Past performance is no guarantee of future results
of either the fund or the securities markets in general.
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How does buying funds directly compare with buying through a broker?
A load fund usually costs the same whether bought directly or through a
broker. A no-load fund can be bought directly at no charge; most brokers will
charge a commission to buy a no-load fund. Some discount brokers now offer
some no-load funds at no transaction fees; normally, they receive a portion of
the funds' annual expenses instead. Holding funds in a broker may make it
easier to trade from one fund to another, however. Closed-end funds usually
need to be traded through a broker, like regular stocks, though some have
dividend reinvestment plans.
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What does
family of funds do compared to a single fund?
Families of funds sometimes offer additional services, such as telephone
switching from one fund to another within the family. With load fund families,
switching from one load fund to another is sometimes allowed without paying a
second load. Some families may make bookkeeping easier by listing all of an
investor's different funds on one statement. Others reduce expenses by sharing
services which realize economies of scale. Note, however, that the good
advertised performance of one fund in a family may or may not be shared by
others.
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What
are the tax implications of mutual funds for individuals?
Like shares of any stock, selling mutual fund shares may cause you to realize
a capital gain or loss. Mutual funds also distribute dividends received and
their own realized capital gains, usually at the end of the year; these
distributions, whether taken in cash or reinvested, are taxable (note that the
nontaxability of municipal bond funds applies only to dividend distributions;
capital gain distributions are always taxable). Thus it is often a bad idea to
buy a mutual fund just before the distribution date, since part of your
investment will be immediately returned to you as a taxable distribution,
resulting in you paying taxes much earlier than if you bought just after the
distribution. Although the distribution lowers the net asset value
of your shares, allowing you to "deduct" it when you sell the shares, paying
taxes sooner rather than later prevents you from gaining investment income on
the amount that is taxed. Note that reinvesting is considered identical to
taking the distribution in cash and sending the same amount into the fund as a
new investment, so don't forget about it when calculating the basis in your
account. When selling, it is best to know the different methods of calculating
the basis of shares sold ahead of time, since some methods require that you
designate which shares are to be sold. For more information, call
1-800-TAX-FORM and ask for publications 544, 550, and 564, and schedules B and
D, but note that tax rules can change since the last tax year.
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What dates
are important when investing in mutual funds?
There are several important distribution related dates to be aware of
when buying and selling mutual fund shares.
* Declaration date: This is the date on which the distribution is
declared, followed by...
* Ex-dividend date: This is the date the shares trade without the
dividend.
* Record date: Shareholders who own shares on this date will receive
the distribution on the ....
* Payment date: This is the date on which the dividend is actually paid
out.
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How do I put mutual funds in an
IRA?
Most funds have a bank or trust company arranged to be an IRA custodian for
any IRA shareholders. If you buy the fund directly, using this custodian, you
must use a different application available from the fund company. The
custodian usually charges $10 to $15 per fund account per year. This is a
significant expense for small accounts, not too significant for larger
accounts. Alternatively, you can open a brokerage account IRA and purchase
mutual funds within that. This would be similar to using a broker to buy funds
normally, but incurs a single IRA custodian fee (usually $25 to $50).
Custodian fees, but not loads or commissions, may be paid separately from the
contribution, and may be separately tax deductible. Call 1-800-TAX-FORM
and ask for publication 590 and form 8606 for general IRS information about
IRAs (but note that tax rules can change since the last tax year). Note that
the tax issues of distributions as detailed previously don't affect IRA
accounts.
More Questions
(FAQs) On
Mutual Funds ==>>
<<== Complete Index of Questions
Related
Articles:
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What are Mutual Funds?
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Advantages of Mutual
Funds
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Disadvantages of
Mutual Funds?
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Different types of Mutual Funds
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More types of Mutual Fund
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How to choose Mutual Funds
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How to buy and sell Mutual Funds
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Tracking your
Mutual Funds
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