Last-Minute Tax Primer for Mutual Fund Investors

Do funds retain their convenience benefits at tax time?


[See The Tax-Efficient Frontier.]

Bottom line: There's more to fund-picking than just investment and management style. The approach to taxes and the convenience and support of fund firms at tax time should also inform mutual fund investor decision-making. Be sure to check the prospectus.

Corporate Insight reviewed the scheduling and depth of tax information that 17 major mutual fund firms sent to their customers during tax season. The firm's key findings include:

• 29 percent of fund companies offer a tax summary online. Fidelity's is the most in-depth.

• Surprising to the researchers, only one firm it tracked, T. Rowe Price, promoted the direct deposit of a tax refund into a mutual fund. Several firms offer this feature, however. The Hartford, for example, allows investors to direct deposit a refund in a mutual fund account.

• Slightly less than half (41 percent) of the fund firms offered clients the ability to receive email notification of tax-form availability online.

• The average tax document archive length is five years, the longest being from Oppenheimer (12 years), followed by Fidelity and T. Rowe Price (seven years).

• American Century and American Funds used banner and image announcements, respectively, to alert clients to tax-form availability. T. Rowe Price was the only firm to employ interstitial messaging.

Corrected on 4/16/2012: A previous version of this article stated that T. Rowe Price was the only firm that allowed customers to direct deposit a tax refund into a mutual fund. However, T. Rowe Price was the only firm tracked by the researchers that promoted this feature to investors.