Question: In a recent column (Apr. 20) you said that gain or loss on sale of mutual fund shares would be either short-term or long-term depending on when you bought them. I understood that capital gains on a mutual funds were always-long-term no matter how long you owned the shares.

Answer: You're absolutely right about one kind of capital gain on mutual fund shares - but there are two.

A capital gains distribution by the fund is always long-term to the shareholder, no matter how recently the shares were bought.

But sale of mutual fund shares follows the same rules as other securities. That is, gain or loss in short-term for shares owned one year or less, long-term for shares held for more than a year.

(There is a rarely applied exception, for shares sold at a loss less than 31 days after purchase.)

Take a look at IRS Publication 564, "Tax Information on Mutual Funds Distributions." This free booklet has a pretty good explanation of both kinds of capital ains, as well as other information useful to fund shareholders.

Q: We're considering the purchase of a new home, but are a little frightened by the size of the monthly payments - much larger than for our present house. Our real estate agent says because of tax savings and investment income the net cost will be less than it seems.Can you explain?

A: Your agent is probably right. Let's use an example to illustrate what he or she is talking about.

We'll start by assuming that you sell your present home for $65,000, and that the present mortgage balance is down $18,000. After paying the realtor's commission and necessary closing costs, you should have around $42,000 left in cash.

(Since you're moving up to a more expensive residence, tax liability on the entire profit will be deferred.)

If you use $22,000 of that cash for the down payment and closing costs on the new house, you have $20,000 left to invest. There are several options; for our purposes let's invest the money in a corporate bond unit trust which provides monthly payments with an annual yield of 9.6 percent.

This means a return of $160 a month. If you're in the 24 percent federal tax bracket (a family of four with gross income of around $30,000), federal and state income tax will reduce that $160 to something like $108.

That's $108 a month more net income that you now have, and effectively reduces the montly cost of the new house by that amount. That's probably the "investment income" the agent was talking about.

How about the tax savings? Let's say you're moving up to an $80,000 house with a 20 percent down payment. (That's $16,000, leaving $6,000 of the $22,000 we mentioned earlier for closing costs and moving expenses.)

Your monthly payment for principal and interest on a $64,000 mortgage at 10 pecent for 30 years comes to $562, plus perhaps another $110 for taxes and insurance.

Of that total of $672 a month, mortgage interest and property taxes (the "deductibles") would probably come to as much as $620 for least the first several years. In the 24 percent bracket, federal and state income tax savings come to about $148.

So the combination of tax savings and investment income adds up to $256 a month. Subtract that amount from the $672 monthly payment for PITI (principal, interest, taxes, insurance) and your net monthly cost comes down to $416 - quite a bit less than the $672 figure that you see at first glance.