Open-end mutual funds and capital-gains taxes 1

  title={Open-end mutual funds and capital-gains taxes 1},
  author={Michael John Barclay and Neil D. Pearson and Michael S. Weisbach},
Despite the fact that taxable investors would prefer to defer the realization of capital gains indefinitely, most open-end mutual funds regularly realize and distribute a large portion of their gains. We present a model in which unrealized gains in the fund’s portfolio increase expected future taxable distributions, and thus increase the present value of a new investor’s tax liability. In equilibrium, managers interested in attracting new investors pass through taxable capital gains to reduce… CONTINUE READING
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