Keeping Records for Your Mutual Fund Investments

Most people worry about keeping records regarding financial issues. Yes, it can be a bit difficult, and it is very likely quite boring to you, but it is absolutely necessary. First of all, you need to have accurate records for tax purposes. You cannot depend entirely on your fund to send you the information you need for taxes. After all, there are computer errors and people errors all the time, not to mention the notorious unreliability of the postal service! Also, if you want to keep a good track of how your fund is performing, keeping accurate records will allow you to do this.

One very important thing to keep a record of is your costs basis. Your cost basis is whatever your shares cost you. This includes the commissions and fees that you paid to purchase the shares.

If you received the shares as a gift, then you would use whatever the cost basis was for the person who gave you the shares. Of course, if the value of the shares you are given is less than the giver's cost basis, you would use the lower of the two values. Inheritance, however, is not the same as getting shares as a gift. If you inherit shares, the cost basis is whatever value is used for the purpose of estate tax. Typically, this would be the most recent sell price before the decedent died, or on the date of their death.

Another note to remember is that any undistributed capital gains that are reported should cause you to increase your basis by the difference between the gains and however must tax you claimed as a credit. If you have any nontaxable distributions, most likely the return of part of your investment money, you would decrease your basis. Exempt-interest dividends do not cause either an increase or a decrease in your cost basis.

Most funds do keep these records for their investors. The problem with their records is that if you have been a shareholder since before their record-keeping began, your records will be incomplete. Also, if you keep your own records, you can cross-check your records with the records kept by the fund to check for inaccuracies. If you find any inconsistencies, you should double check your own records immediately. If you feel that you are certain your records are accurate, contact your fund manager and tell them you have found information that is not consistent with your own records, and ask them to double check their records. If they do check their records and find them to be accurate, they may be willing to help you figure out where you went wrong with your own records.