- If a mutual fund distributes substantially all (at least 90 percent of dividends and 98 percent of capital gains), then the mutual fund can qualify as an investment company, according to Investopedia.
- An investment company can serve as a pass-through investment and the mutual fund will avoid taxation of dividends and capital gains.
- Reinvested dividends allow shareholders to begin to compound their interest or have their dividends start to create their own dividends.
- While the mutual fund does not pay taxes on capital gains and dividends, the shareholder has a requirement to pay taxes on all distributions into a taxable account (non-retirement account).
- Understanding typical dividend yields can help an investor understand the relative valuation of the portfolio.
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