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One among many ways you lose money in non-indexed mutual funds is the tax trap. You may have to pay taxes even w

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

hen your mutual fund loses money! To many people this is painfully unexpected. Here is how this counter intuiti

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ve event occurs. By law, mutual funds do not pay taxes. Instead, they pass on those taxes to you, the sharehold

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

er in the mutual fund. If the fund manager sells a stock for more than it cost the fund a profit is generated.

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

This profit is called a capital gain and it is taxable. Capital gains are taxed at your ordinary income tax rate

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

which is between 28% and 38.6% for most investors if the fund held the stock for less than a year. If the stock

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

was held for more than a year, in other words long term, the tax is 20%.

There are a couple of reasons why mutua

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

l funds pay taxes. If the fund does poorly investors will bail out. The mutual fund has to sell off stock to pa

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

y the investors who leave. Even if you are not one of the investors jumping ship you will still have to pay your

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

portion of the capital gains tax.

Dividends are another reason that taxes come due. Dividends are taxed at the

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

per-share earnings distributions that companies make out of their quarterly earnings. Many investors instruct th

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

eir mutual fund to automatically reinvest their dividends. This means that the fund uses the money to buy more s

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

hares in your name. Even if you reinvest and never get a penny of the dividends, they are subject to tax, accord

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ing to the IRS.

Another reason you may get a tax bill is due to high turnover. Turnover measures the frequency

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

with which a fund manger buys and sells shares, sometimes in search of the next high-flying stock or undervalued

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

tock on the verge of taking off. According to Lipper, the average fund in 2000 showed a turnover rate of 122%.

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

This means that the entire portfolio changed between January and December, and 22% of the replacement shares cha

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

nged as well.

This is the ultimate case of account churning! You simply have to understand that when you buy in

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

to a fund you are buying into a tax liability. The best way to avoid these taxes altogether is to restrict your

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

purchases of mutual funds to your 401(k) and try to only buy indexed mutual funds such as the Vanguard 500 (FINX)

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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