Unwanted Tax Consequences
There are three taxable events with a mutual fund: (1) sale of securities within the portfolio, (2) the declaration and payment of dividends and/or interest from the portfolio’s securities, and (3) sale of mutual fund shares. Your clients cannot control whether or not a fund is going to sell one or more securities for a profit or loss. Similarly, they cannot stop the payment of dividends and/or interest. The third event is the only one controllable by the shareholder.