TY - JOUR T1 - Tax Savings with Mutual Fund Distributions JF - The Journal of Portfolio Management SP - 82 LP - 88 DO - 10.3905/jpm.2002.319866 VL - 29 IS - 1 AU - Vijay Singal Y1 - 2002/10/31 UR - https://pm-research.com/content/29/1/82.abstract N2 - Under the current tax code, investors receiving mutual fund distributions are subject to capital gains taxes based on the mutual fund's, not the investor's, holding period. Investors can use this wrinkle in the tax code to their benefit by converting short-term capital gains into long-term capital gains. An investor buys into a mutual fund with long-term capital gains just before its distribution date, and sells it immediately after the distribution. This process captures for the investor the long-term capital gains distributed, but also produces a short-term capital loss as the mutual fund price falls by the amount of the distribution. The short-term capital loss can be offset against other short-term capital gains of the investor. The investor can save on taxes because the capital gains are now long-term, not short-term. Current mutual fund shareholders are not hurt by the actions of these transitory investors, because the distributions are now divided into a greater number of shares, making the per share distribution smaller, and thereby reducing the tax liability of existing shareholders ER -