Regarding Div. and LTCG Dates: When to Buy a Mutual Fund

[MercyMe]

I am correct that it's not a good idea to buy mutual fund shares until after the ex-dividend date?

Here is why I'm asking...
I have new funds to deploy in a certain mutual fund, but the next ex-dividend date is 12/2/22 and it's next LTCG payout date is 12/30/22. These dates are presumable based on 2021 dates. I'm not even sure it will have LTCG to pay and I'm not sure how to find out.

I hate to see the funds sitting in a money market between now and the first of the new year.

 

[audreyh1]

If it’s this close, yes it’s generally better to wait until the ex-div date in a taxable account to avoid additional taxable income.

Which fund family is it? Estimates plus dates are often published by this time of year. See if it is here: https://www.mutualfundobserver.com/...year-end-capital-gains-distribution-estimates

P.S. only a month and a half until the end of the year.

 

[COcheesehead]

If you buy right before it’s called buying a dividend. Something generally frowned upon in a taxable account.

 

[gauss]

Can you buy an index ETF, instead, in a brokerage account? I thought they were less likely to distribute CG's than mutual funds.

-gauss

 

[Sunset]

Can you buy an index ETF, instead, in a brokerage account? I thought they were less likely to distribute CG's than mutual funds.

-gauss

+1
Or OP could buy an 8 week T-bill and then buy the fund in the new year.

I personally prefer ETF's as they are more tax efficient than Funds in many cases.
It's the surprise declared Capital Gain a fund can do , while it drops in value that is especially irksome to me.

 

[COcheesehead]

I completely agree with keeping managed funds out of taxable accounts.

 

[Graybeard]

https://investor.vanguard.com/investor-resources-education/taxes/buying-dividend

 

[MercyMe]

Can you buy an index ETF, instead, in a brokerage account? I thought they were less likely to distribute CG's than mutual funds.

-gauss

Thanks for the suggestion. There is no ETF for this MF.

 

[MercyMe]

If it’s this close, yes it’s generally better to wait until the ex-div date in a taxable account to avoid additional taxable income.

I guess this is what I probably should have asked...
If there are 90 days between ex-dividend dates, at what point along the 90 days is it best to wait until the next ex-divided date before buying?

 

[COcheesehead]

I guess this is what I probably should have asked...
If there are 90 days between ex-dividend dates, at what point along the 90 days is it best to wait until the next ex-divided date before buying?

The longer you are in it, the more likely you can take advantage of growth that will be partially removed from the NAV, taxed and given back as a dividend. The shorter you are in it, the more likely you will not see the growth, but still taxed on it as if you were invested for the entire period.

 

[audreyh1]

In general, if the fund is not paying capital gains distributions I wouldn’t worry about it.

Usually even funds that pay quarterly dividend distributions only pay capital gains distributions once or twice a year.

 

[MercyMe]

The longer you are in it, the more likely you can take advantage of growth that will be partially removed from the NAV, taxed and given back as a dividend. The shorter you are in it, the more likely you will not see the growth, but still taxed on it as if you were invested for the entire period.

Hmm... I now wonder if this is even a factor since it is a tax-exempt muni fund that I'm ready to buy.

 

[COcheesehead]

Hmm... I now wonder if this is even a factor since it is a tax-exempt muni fund that I'm ready to buy.

Interest is usually tax free, capital gains may be taxed. You can research what the fund will potentially distribute. That data is available.

 

[audreyh1]

Hmm... I now wonder if this is even a factor since it is a tax-exempt muni fund that I'm ready to buy.

No, it’s not an issue at all. Capital gains distributions in this environment are very unlikely, and bond dividends are paid out based on how long you are in the fund, so timing doesn’t matter. Plus federal tax exempt.