So far, this whole mutual fund thing sounds pretty good. Lots of options, good return, minimized risk, reasonable fees. Before you have your cake and eat it, recognize that there are some costs that won’t appear on the glossy surface as you explore mutual funds.

One other “cost,” which isn’t related to the fund directly but to the government, is an old standard: taxes. On the plus side, if you lose money on the fund you won’t be paying capital gains tax, but that’s hardly a reason to celebrate. If you see a profit, you will pay taxes on dividends or on capital gains distributions paid to you while owning shares of the fund, or on your profits (capital gains) from selling your shares of the fund. You may also be subject to state taxes, depending on the state in which you reside.

You may also see capital gains based on the trading done by the fund manager, even though you haven’t sold any of your shares. These can hit you for taxes. Buying funds late in the year is ill-advised because you can be hit for higher taxes as the fund is just about to distribute their capital gains.