In an unprecedented move for a mutual fund, The Markman MultiFund is closing to new taxable investors between Nov. 1 and Dec. 31, so investors will avoid exposing themselves to unnecessary tax liability on the fund's ex-dividend date, which is Dec. 29.
That's the date mutual funds are legally required to distribute to shareholders all of the dividends and realized capital gains produced by the portfolio. On that date, fund shares drop by the amount of the distribution.
Because most investors automatically reinvest the distributions by buying additional shares, there is no change in the value of their holdings. But tax experts warn investors about the tax implications of investing in a fund just before its ex-dividend date. This is especially true in a year like 1995, when stocks have incurred such significant capital gains, said Bob Markman, portfolio manager.
Mr. Markman said it's about time someone in the funds industry faced up to the ex-dividend issue and protected shareholders. He said despite media attention, shareholder cash flows into mutual funds do not decline in December; in fact, sometimes they rise.
If shareholders still say they want to invest during this period, Mr. Markman will allow them in.
He chose a two-month period straddling Dec. 29 because if the period were any longer, the capital appreciation potentially could outweigh any tax advantage.
