Talati BHARTI New UPDATE 2019
A mutual fund is a type of investment in which investors pool their money together to buy a portfolio of stocks, bonds or other securities in order to take advantage of diversification and professional portfolio management at a reasonable cost. Securities in actively managed funds are selected by a team of investment managers and research analysts. Investing in mutual funds enables those investing a modest amount of money to benefit from the same advantages enjoyed by large institutional investors.
Mutual funds are required to periodically distribute their dividends, interest, and capital gains, if any, to their investors. This is usually done monthly, quarterly, or annually. Like individual stocks and bonds, these distributions are subject to taxation. Dividend and interest income is generally taxed at your ordinary income tax rate. Distributions of capital gains from the sale of securities by the fund may be taxed as ordinary income or as a long-term capital gain, depending on how long the securities were held by the fund.
Investors may also be subject to ordinary income tax or capital gains taxes when selling fund shares based on how long the shares were held. Dividend distributions from mutual funds that invest in municipal bonds are generally exempt from federal income tax and in some cases by state income tax as well, depending on the fund. Capital gains distributions generally are taxable. Taxes on mutual funds held in an individual retirement account or other tax-advantaged account are generally deferred until the holder begins withdrawing money from the account