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Investing Specialists

Stop the Mutual Fund Capital Gains Distribution Madness!

Some funds are likely to make big payouts again this year, but you don't have to take them lying down.

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When I joined Morningstar’s fund analyst team more than 20 years ago, we’d sometimes talk about various actively managed mutual funds being tax-efficient, largely because they didn’t trade a lot. Third Avenue Value (TAVFX) used to come up in this context; BNY Mellon Appreciation (DGAGX) was another. 

Yet even as low turnover should, in theory, contribute to good tax efficiency because it limits the manager’s realization of taxable capital gains, the data continue to pile up to demonstrate that the vast majority of active funds just aren’t a good bet for taxable accounts. 

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.