A higher turnover ratio for a mutual fund can result in higher income tax bills.

Question

Quizplus · Accepted Answer

Mutual funds are subject to capital gains taxes on their realized gains, which include both short-term and long-term capital gains. If a mutual fund has a higher turnover ratio, it means that its portfolio manager is buying and selling securities more frequently, which can result in more realized gains for the fund. As a result, investors in the mutual fund may be subject to higher income tax bills.

A Higher Turnover Ratio for a Mutual Fund Can Result