Be careful about buying shares in a mutual fund during the last quarter of the year (that is, during the months of October, November, and December). Most funds announce their dividends, capital gains, and other such profits for the year during this quarter. The actual payment of these profits to shareholders (called the distribution) usually doesn’t take place until January.
However, according to Internal Revenue Service rules, these profits are considered paid on December 31, and anyone who is a shareholder as of that date must pay taxes on them. Thus, you’re probably better off waiting until after the January distribution to invest. You can receive the benefits of the profits, but you won’t have to pay a tax bill on them because you were not a shareholder as of December 31.
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