Investors in U.S. mutual funds might want to keep an eye on this. The Committee on Capital Market Regulation (CCMR) has recently issued a report by Harvard professor John C. Coates which recommends that mutual fund regulators eliminate the requirement for yearly capital gains distributions.

The change would only affect investors who own less than 2% of outstanding shares in any given mutual fund, but I imagine that’s most individual investors.

If the recommendation were to go into effect, capital gains would be deferred until the fund was sold, just like individual stocks. Coates has made the recommendation because he believes it will help make U.S. funds more competitive in the international market, but it would also help bring a tax break to investors as well as improve consistency in the capital gains treatment.

This would be a pretty big change since, mutual funds sold Europe are not required to pay a capital gains distribution at least once per year.

Read the report here (PDF)

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