Q 8.11: Which is the best type of investment for investors who want to reduce the frequency of their tax liability? A Mutual fund: Taxes are paid only when the fund makes distributions. Stocks and bonds: Taxes are paid only when you sell the stock or bond. C Mutual fund: Capital gains taxes are paid only if you sell the fund for a profit. Stocks and bonds: Tax on capital gains are paid only if you sell for a profit, and taxes are paid on interest received on bonds and dividends received from stock