Message Font: Serif | Sans-Serif
No. of Recommendations: 1
"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.
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.