Sell mutual fund with short term CG after distributions
When I was liquidating my FIREX holding last year, an interesting observation came to my mind. If an investor, for whatever reason, needs to liquidate a substantial position with short term capital gains, and there is a fund distribution coming up, it makes sense to find out (whenever possible) the nature of the fund distribution — whether it is mostly short-term CG (capital gain), long-term CG or qualified income distribution.
The reason is because if the distribution is mostly long-term CG or qualified income, then by selling after the distribution, the investor can save on taxes, with the savings being attributable to the difference in tax rates between short-term CG and long-term CG (or qualified income).
The above obviously assumes no significant market price movements in the mutual fund. However nobody has a perfect crystal ball to predict future price movements; so with all things been equal, selling a mutual fund with short term capital gains after the fund distribution seemed to be a good strategy to adopt in such a scenario.
Stumble it!
