Yes. Except for money market funds, in which the value of shares remains constant, the price of mutual fund shares fluctuates, just like the price of individual stocks and bonds. When you sell shares, you need to know exactly what your tax basis is to pinpoint the taxable gain or loss.
Because redemptions can produce short- or long-term gain results, you also need to track the holding period of all shares you own.
Set up a separate file for each fund you invest in—either on paper or electronically on your computer—and faithfully keep it up to date. Beyond simplifying your life at tax time, there's a good chance thorough records will save you money.
As with individual stocks, your basis in the shares begins as what you pay for them. If you invest in a no-load fund—one free of a sales commission—your basis is the same as the share's net asset value on the day you buy. If you buy into a load fund, your basis includes the load charge.
Shares purchased through dividend reinvestment - This link may help you determine the cost basis of your mutual funds.
One area that's easy to overlook when figuring your basis—particularly if you sell all your shares in a fund at once—is shares that you've acquired through automatic reinvestment.
When you purchase shares using reinvested dividends, it's as if the dividends were paid to you in cash, and then you immediately used that cash to purchase new shares.
The amount of the distribution that you use to purchase each share is the original cost basis for that share.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
