Separately Managed Accounts Have Tax Benefits

If you're tired of paying taxes on mutual fund distributions, you might want to consider investing through a separately managed account.

These products can give you access to some of the same investment strategies used in mutual funds, but unlike funds, you pay taxes only when you actually sell your holdings.

The investment minimums on separately managed accounts have been steadily falling, so they're no longer reserved for the very wealthy.

F-Squared Investments of Wellesley, Mass., recently started offering a handful of products with one of the lowest minimums around: $15,000. That's at the higher end of the minimums on mutual funds aimed at retail investors.

Many separately managed accounts require you to pony up at least $100,000. But it's hard for people with even $1 million or more to diversify across several investment strategies when the minimums are this high.

Howard Present, president and CEO of F-Squared, says that with a $15,000 minimum, an investor with as little as $100,000 to $200,000 can enter the club.

The fees on F-Squared's new offerings, which it calls "individually managed accounts," are also a very low 55 basis points, or 0.55% of assets. Present says that's about half of what the average separately managed account costs.

What's so great about separately managed accounts? You actually own the underlying securities. That means you won't incur a capital gain unless the securities are sold at a profit -- although you may get a tax bill for stock dividends or interest on bonds.