Research Shows US Fund Investors Paid $8.6 Billion Tax Last Year

by Mike Godfrey, Tax-News.com, Washington

10 April 2003

A study has shown that despite the bearish market conditions through 2002, fund investors were saddled with a total tax bill of $8.6 billion. However, this still compares favourably with the $31.3 billion investors paid in tax in 2000, according to research firm Lipper Inc.

The equities sector performed poorly last year and many investors pulled money out of funds. However, some managed to realise gains from bond funds, which in comparison performed relatively well. Hence, many investors were liable for capital gains tax on these profits when managers sold the investments.

Lipper Inc's research found that over the last decade, shareholders in taxable stock and bond mutual funds have handed over a quarter of their profits in taxes.

Out of a total of $3.4 trillion invested in taxable funds, the study revealed, only $25.6 billion is placed in tax managed accounts. These aim to control the amount of tax expenses that investors have to pay.

The research also found $389.4 billion is invested in index funds which are said to be tax efficient due to passive management and the longer holding periods for assets.

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