There are many taxation disadvantages with managed funds, and that is one of them (i.e being taxed on capital that has not yet made a gain). Other disadvantages include the loss of franking credits, lack of tax transparency of quoted NTA values (unrealised capital gains and losses is unknown just by looking at the NTA, so 2 funds with the same NTA can have different NTAs after tax) etc.
The most unfair of those disadvantages is that unitholders are liable for CGT for investors that withdraw. To explain this, imagine a managed fund with 100M in AUM, and 10M in unrealised capital gains. A large investor then pulls 10% of the fund's units out. Where does that 1M in realised capital gain go? It is not 'streamed' to the redeeming investor (such as in an ETF structure), but rather borne equally by the remaining investors. As a managed fund investor you have to pay CGT on other people's withdrawals! Funds with sudden large redemptions will see large taxable distributions made out to the poor remaining investors. In 2016, the government enacted legislation creating a new attribution managed investment trust structure, however, most funds have NOT elected to adopt it, so the old tax inefficiencies remain.
However, with that said, even with those tax inefficiencies, good fund managers are still a good way to invest, and no structure is perfect really (listed investment companies, listed investment trusts, ETFs, exchange traded managed funds all have their downsides too).
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