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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121146  
Subject: Re: Grandparents, Custodial Accounts and Taxes Date: 3/4/2001 11:24 PM
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"Wouldn't it be better from a tax perspective to have the funds in growth stocks, which are less likely to produce taxable income, instead of aggressive growth mutual funds, which distribute capital gains every year?"

"I'm not so sure that's always the case. Some growth funds can produce capital gains just as plentiful as aggressive growth funds. High turnover ratio's can be found in both classes."

From a tax perspective, you are looking for a fund that has both low turnover (i.e., low capital gains) and low dividends. A traditional growth fund invests mostly in non-dividend yielding stocks with long term growth potential and has low turnover. An aggressive growth fund basically is a momentum trading fund with high turnover. There are also "tax managed" funds.

"Growth" vs. "aggressive growth" is a legitimate, and important, distinction in classifying funds. However, you can't just look at labels before deciding. Many funds that simply call themselves "growth funds" are really "aggressive growth funds" (i.e., momentum trading funds). Always look for the fund's actual turnover rate and short term capital gains taxes.
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