when the mutual fund manager sells a security a capital gains tax is triggered which can be extended to you etfs for example avoid this through their creation and redemption mechanism your taxes can be lowered by investing in tax sensitive funds or by holding non tax sensitive mutual funds in a tax deferred account such as a 401 k or ira 15
evaluating mutual fundsresearching and comparing funds can be more difficult than for other securities unlike stocks mutual funds do not offer investors the opportunity to juxtapose the price to earnings p e ratio sales growth earnings per share eps or other important data a mutual fund s nav can offer some basis for comparison but given the diversity of portfolios comparing the proverbial apples to apples can be difficult even among funds with similar names or stated objectives only index funds tracking the same markets tend to be genuinely comparable watch out for diworsification diworsification a play on words that performs the concept is an investment term for when too much complexity can lead to worse results many mutual fund investors tend to overcomplicate matters that is they acquire too many funds that are too similar and as a result lose the benefits of diversification example of a mutual fundamong the most notable mutual funds is fidelity investments magellan fund fmagx established in 1963 the fund had an investment objective of capital appreciation via investment in common stocks the fund s height of success was between 1977 and 1990 when peter lynch served as its portfolio manager under lynch s tenure magellan s assets under management increased from 18 million to 14 billion 16as of march 2024 fidelity magellan has about 33 billion in assets managed by sammy simnegar since 2019 the s p 500 is the fund s primary benchmark 17mutual funds vs index fundsindex funds are mutual funds that aim to replicate the performance of a market benchmark or index for example an s p 500 index fund tracks that index by holding the 500 companies in the same proportions a key goal of index funds is minimizing costs to mirror their index closely by contrast actively managed mutual funds try to beat the market by stock picking and shifting allocations the fund manager seeks to achieve returns greater than a benchmark through their investing strategy and research index funds offer market returns at lower costs while active mutual funds aim for higher returns through skilled management that often comes at a higher price when deciding between index or actively managed mutual fund investing investors should consider costs time horizons and risk appetite mutual funds vs etfsmutual funds and etfs are pooled investment funds that offer investors a stake in a diversified portfolio however there are some crucial differences among the most important is that etf shares are traded on stock exchanges like regular stocks while mutual fund shares are traded only once daily after markets close this means etfs can be traded anytime during market hours offering more liquidity flexibility and real time pricing this flexibility means you can short sell them or engage in the many strategies you would use for stocks another significant difference is pricing and valuation etf prices like stocks fluctuate throughout the day according to supply and demand meanwhile mutual funds are priced only at the end of each trading day based on the nav of the underlying portfolio this also means that etfs have the potential for larger premiums discounts to nav than mutual funds compared with mutual funds etfs tend to have certain tax advantages and are often more cost efficient 18