You decide when to repay it. In the meantime, you can keep the money invested. The problem is that many funds fail to take advantage of capital-gains deferral. By churning their portfolios, fund managers force their shareholders to pay taxes sooner rather than later. The table below compares year 2000 capital gains distributions with those of the previous year.
Most mutual funds tend to distribute gains toward the end of the year.
Additionally, year-end distributions are typically larger than those made in the preceding months. Long-term gains, on the other hand, are profits on investments held for more than a year. Funds distribute gains throughout the year without announcing so in advance, though most funds usually distribute gains in December. First, we've enjoyed a long bull market, so many funds are sitting on substantial unrealized capital gains. According to Morningstar, more than 400 domestic stock funds carry unrealized gains equal to more than half of the fund's assets .