In fact, you'll have to pay a higher, short-term tax rate on the gains from assets the manger held for less than a year. But taxes are only half the story. The typical mutual fund also charges annual fees, an expense ratio it uses to pay the fund manager, and transaction costs it uses to pay the fund's brokerage expenses. All the money you spend on fees and short-term capital gains taxes could have remained invested and compounding. High expense ratios.
Investors pay a fee for the privilege of owning shares.
That fee goes to the fund's manager. But instead of a flat amount, the fee is based on your assets in the fund. The more money you have invested, the higher your fee. Undisclosed transaction costs. This is the fee that a mutual fund pays to its broker to buy and sell stocks.