By RACHEL LOUISE ENSIGN

Fund investors can go wrong in all sorts of ways. But since mid-April is fast approaching, let’s talk about one of the most common and least understood: taxes.

Even if it is too late to do anything about this year’s returns, it is a good time to start planning for next year’s.

At the root of the most common blunders are three types of taxable fund payouts: interest income, dividends and capital gains. While all three are subject to a complex web of tax rates and regulations, investors can limit their tax bills by understanding their funds, planning carefully and staying abreast of tax changes in Washington.

Here, according to financial advisers, are five of the biggest mistakes many fund investors make:

1. Keeping ‘tax-inefficient’ funds in a taxable brokerage account

Some types of funds distribute lots of dividends, interest income and capital gains, all of which can boost tax bills. Many investors would be better off holding those funds in tax-sheltered retirement accounts. With a standard 401(k) plan or individual retirement account, you pay tax only when you make withdrawals; earnings and withdrawals usually are tax-free in a Roth 401(k) or Roth IRA.

Tax-efficient funds—those unlikely to make big distributions—can be left in a taxable account, says Michael Gibney, a financial adviser in Riverdale, N.J. You will owe capital-gains tax if you sell those securities at a gain, but at least the timing of such sales is under your control.

Financial adviser Ken Weingarten talks with WSJ’s Rachel Ensign about the tax uncertainties facing investors as they look ahead to 2013.

Taxable-bond funds, including high-yield funds and funds holding Treasury inflation-protected securities, are among the investments you might consider holding in an IRA, advisers say. Ditto for funds that emphasize high-dividend stocks. Meanwhile, index funds that track a broad stock-market benchmark—and most but not all ETFs—might be candidates for a taxable account, as would municipal bond funds, since interest earned is tax-free.

Determining whether a fund is going to have capital gains can be tricky. Each year, funds must distribute gains if portfolio managers sell securities for a net taxable gain. One indicator is the level of turnover in the portfolio, though, admittedly, it is an imprecise gauge.

The higher a fund’s turnover, a figure that can be found on Morningstar.com, the more likely it is to pay out capital gains, says Mark Armbruster, president of Armbruster Capital Management, which is in the Rochester, N.Y., area. If a fund has paid out capital gains in the past, something that also can be found on Morningstar, that also is a sign it may do so again, he says.

Small-stock funds may produce more capital gains than large-stock funds, advisers say, because there are many more small stocks to trade among.

Broad index funds, which don’t change their holdings very often, are less likely to pay out capital gains than some actively managed funds that change their investments based on market conditions. The Vanguard 500 Index

fund, for example, has a 4% turnover ratio and hasn’t distributed capital gains since 1999. The actively managed CGM Focus,

on the other hand, has a nearly 500% turnover rate. It has performed poorly in recent years, so it hasn’t been in a position to distribute gains, but it distributed $8.21 a share in mostly short-term capital gains in 2007.

Still, when and why a fund realizes capital gains is complex, so “turnover is only a very rough gauge of tax efficiency,” says Christine Benz, director of personal finance at Morningstar. Another gauge is Morningstar’s “potential capital-gains exposure” statistic, an estimate of the percentage of a fund’s assets that represent mostly unrealized gains.

ETFs, in particular, rarely distribute capital gains, Mr. Armbruster says. That is because most are index funds but also because they are structured to minimize taxable sales of portfolio securities.

2. Holding on to funds that cost you big

Capital gains, whether taken on purpose by the investor or passed along by a fund, can add to your tax bill. But you can lessen their impact by strategically booking capital losses when holdings decline in value, so that they offset any gains dollar for dollar. In any year, if your capital losses exceed your capital gains, you can take up to $3,000 of the loss as a tax deduction and carry the rest of the loss forward to offset gains in future years.

This “tax-loss harvesting” has to be done carefully, however, to comply with Internal Revenue Service rules. Once you sell a fund or other security at a loss, you have to wait 30 days before buying either that same fund or a very similar fund (for instance, one that tracks the same index), or the loss is invalidated. “The securities cannot be ‘substantially identical,’ ” says Gil Charney, principal tax researcher at the Tax Institute at H&R Block, a division of H&R Block Inc., but “the IRS never clearly defined what substantially identical means.… It’s gray.”

If you want to keep exposure to the sector that fund covered, you can buy a slightly different fund—for instance, you likely could sell a fund tracking the Standard & Poor’s 500-stock index and immediately buy one tracking the Russell 1000, says Mr. Armbruster. You could later return to your original holding.

Keep tax-loss harvesting in mind any time the market or a particular holding suffers a major decline; you’ll miss opportunities if you think about this only near year-end.

3. Buying an ETF without learning what its tax treatment is

Gains and income from certain ETFs are subject to funky tax rules because of the funds’ holdings or their corporate structures. Though most of these aberrations invest in niche industries, some of the most popular ETFs could leave you with a surprisingly large tax bill.

The most popular offender: Gains from selling SPDR Gold Shares,

the second-largest exchange-traded product by assets, are taxed at a top 28% rate on collectibles, rather than the maximum 15% rate on long-term capital gains. That is true for all other funds that hold physical precious metals.

There are different rules for ETFs that provide commodities exposure by investing in futures contracts: Gains are taxed 60% at a long-term rate and 40% at a short-term rate. ETFs structured this way include some from the U.S. Commodity, PowerShares and ProShares families.

Also, some non-stock ETFs are structured as partnerships and report their tax information on a Schedule K-1 instead of the common 1099 form. Schedule K-1 typically is sent later than a 1099—it may not even arrive before your tax return is due because the partnership has to file its own return before sending you this form, says Eric Smith, an IRS spokesman. In this situation, you’ll want to ask for an extension from the IRS, he says. You can avoid these hassles by holding these funds in an IRA.

4. Fudging the new forms

Reporting securities sales on your tax return has gotten more complex, with new rules that require brokerage firms and fund companies to report to the IRS what you paid for some securities you sell. Because that reporting applies only to securities purchased after specified dates, you may have sales of both “covered” and non-covered assets. As in the past, for non-covered securities, the financial firm may voluntarily provide cost information only to you.

The new rules could make tax preparation more complex, tripping up some investors.

“Basically what they’ve done is taken Schedule D and added a new schedule behind it—Form 8949. All the transactions you used to put directly on Schedule D…are now on this new form,” says Robert Schmansky, a financial adviser in Bloomfield Hills, Mich.

The most important thing to know about Form 8949 is that you will have to separate the covered transactions from those that aren’t and report them on different lines. Individual stocks purchased on or after Jan. 1, 2011, are covered; for mutual funds and most ETFs, the new treatment applies to purchases on or after Jan. 1, 2012. Then, you must add the covered and non-covered transactions and put the total on Schedule D.

5. Investing without paying attention to the tax debate in Washington

When deciding when to take gains and what account to hold various funds in, it is important to stay abreast of what is going on in Washington.

Think hard about where tax rates are likely headed in the future. While some tax changes affecting funds are already in store, some experts watching the political debate—and the ballooning federal deficit—say investors may want to hedge their bets against higher rates and pay taxes on their gains soon.

There are a number of big tax changes on tap starting in 2013 that could deal a huge blow to your funds. If the Bush tax cuts are allowed to expire, the top rate on ordinary income and short-term capital gains will rise to 39.6% from 35%.

The current top 15% rate on long-term capital gains is set to rise to 20%. Qualified dividends will no longer be taxed at a top 15% rate and will be taxed as ordinary income. Also, net investment income, which includes dividends, interest and capital gains, will be subject to a new 3.8% Medicare tax, part of the Affordable Care Act, for married couples filing jointly who earn more than $250,000 a year and individuals earning more than $200,000 a year.

One possibility is that some of the current rates will be extended for most taxpayers, but not for high earners. “People who are over the $250,000 mark—Obama has drawn a line in the sand for those people,” says Ken Weingarten, a financial adviser in Lawrenceville, N.J. “It’s going to be crazy after the election. There is going to be a lot of horse trading to get these things straightened out.”

If you think that your tax rate on capital gains will rise soon, you may want to book a capital gain this year to lock in the 15% rate. Unlike with a capital loss, if you’re booking a gain you can repurchase the same exact fund in any quantity immediately after selling it.

Ms. Ensign is a staff reporter for The Wall Street Journal in New York. She can be reached at rachel.ensign@wsj.com.

A version of this article appeared April 5, 2012, on page C7 in the U.S. edition of The Wall Street Journal, with the headline: Tax Pitfalls for Fund Investors.

Tim Evans/Saturn Lounge for the Wall Street Journal (macau); Eli Meir Kaplan for The Wall Street Journal (cat and dog)

Faces of the insured: Big Bird, a 29-year-old macaw, had a partial wing amputation due to a bone infection before he got coverage. Insurance helped pay for Burmese cat Raisin’s pancreatitis treatment and golden retriever Birdie’s allergy testing.

The cost of medical care for pets is rising as fast as it is for humans, and that’s helping to spur sales of pet insurance.

Pet owners are able to choose from a rapidly growing array of policies, featuring everything from high-deductible designs to coverage of alternative-medicine treatments like acupuncture. Some pet policies focus on accidents and illness, while others include wellness checkups and shots. And some things that traditionally weren’t included in pet insurance, such as hereditary conditions, are now paid for under many plans.

Consumers need to be careful, since many pet policies can be as confusing as coverage you buy for yourself. Pet insurance often places strict limits on how much it will pay for particular procedures. And policies can have tricky designs that can leave consumers with big out-of-pocket bills for their animals. Premiums vary from around $10 a month to $75 a month, depending on factors including the richness of the plan, your location and your animal’s breed and age.

This year, pet owners are expected to spend around $12.2 billion for veterinary care, up from $11.1 billion last year and $8.2 billion five years ago, according to the American Pet Products Association. Complex procedures widely used for people, including chemotherapy and dialysis, are now available for pets, and the potential cost of treating certain illnesses has spiked as a result.

Donna Oliver, in Austin, Texas, has shelled out about $32,600 since 2007 to care for two dogs who passed away earlier this year. Marley, a Labrador, got stem-cell therapy for his arthritis, surgery on his windpipe to deal with a condition that was choking off his breathing, and, at the end, medication to ease the pain of advanced cancer. Maddie, a corgi mix, suffered from Cushing’s disease, a hormonal disorder, and got treatment including surgery to heal ulcers on her corneas.

“It does cost a lot if you want to do the right thing by them,” says Ms. Oliver, a 38-year-old customer-service manager, who says she is still paying off the credit-card bills. To avoid a similar situation with her three remaining dogs, Chelsea, Jasmine and Runner, she recently bought insurance for them.

One Million Insured

Currently, around a million U.S. pets are insured, according to the North American Pet Health Insurance Association. The number is growing about 10% a year, the group estimates, though that still represents just a tiny fraction of all pets.

Around 90% of the insured are dogs, with about 10% cats and a small number of other animals. The biggest U.S. pet-insurance company, Veterinary Pet Insurance, or VPI, a unit of Nationwide Mutual Insurance Co., says it has written policies for hedgehogs, snakes, turtles and geckos, among other creatures.

Eli Meir Kaplan for The Wall Street Journal (6); Tim Evans/Saturn Lounge for the Wall Street Journal (Parrot)

These pets’ owners got insurance so financial concerns don’t guide their pets’ care. “I want it to be because of quality-of-life issues,” says Karen Becker, owner of Darwin, whose policy helped cover the parrot’s broken leg.

Karen Becker, an art-school program director in Baileys Harbor, Wis., has insured her African grey parrot, Darwin, and blue and gold macaw, Big Bird, since she got them in 2001 and 2008, respectively. Treatments for birds can be at least as pricey as those for larger animals, she says, and the parrots may live for decades. Ms. Becker, 52, says she doesn’t want financial concerns to guide decisions about her pets’ care: “I want it to be because of quality-of-life issues.”

If you’re considering pet insurance, start by shopping around. It’s best to start when the animal is still young and healthy, since new policies won’t cover pre-existing health conditions and some insurers won’t take on pets over a certain age.

The industry has grown in recent years, with new competitors such as Pets Best LLC, Petplan Inc., Embrace Pet Insurance Agency LLC and Trupanion, a unit of Vetinsurance International Inc., entering the market. In the past, a number of startup pet-insurance firms have gone out of business, so it is worth checking with your state regulator about companies’ age and record.

Workplace Benefit

Consumers may also be able to buy pet insurance through their workplace, which can often be cheaper than buying on your own. Around 19% of employers offer the policies as a voluntary benefit, according to a survey conducted this year by the International Foundation of Employee Benefit Plans. That includes firms such as Colgate-Palmolive Co. and Chipotle Mexican Grill Inc.

To learn about policies, you can start with overview Web sites such as petinsurancereview.com, dogtime.com and petinsuranceguideus.com. For definitive information, though, you should click through to the sites of the individual pet insurance firms, which can offer premium quotes.

Once you’ve narrowed down the list, get full policy documents, which are often posted online or available through a phoned request. Use those, in combination with phone calls or emailed inquiries to the companies, to delve into the details of the plans.

You will want to check how the company will raise premiums as you renew the policy. Often, they go up with age and veterinary inflation. They may also be linked to your animal’s claims history—so a pet with a lot of health issues in a given year could see a heftier increase the following year.

You also want to take a close look at what you would have to spend out of your own pocket if your pet got injured or ill. Pet-insurance firms tend to limit what they reimburse for various treatments. And you’ll generally have to pay the bills up front, then seek reimbursement from the insurer.

Crystal’s Surgery

When Elizabeth Pannill’s Labrador, Crystal, needed back surgery a few years ago, the insurance covered less than half of the nearly $4,000 total bill. Then, when Crystal got a tumor removed from her rib earlier this year, spending 10 days in an animal-hospital intensive-care unit, the plan paid about $1,700 of the nearly $5,500 total, which already included a professional discount for Dr. Pannill, a veterinarian who isn’t currently in clinical practice.

Dr. Pannill says that despite the limited payouts, she also has purchased insurance for two other dogs and a pair of cats. “It just gives you a little peace of mind that you would have some financial help when an illness came along,” says the 56-year-old, who lives in Staples, Texas.

VPI pays flat amounts for various treatments. Other pet insurers pay a percentage of vet bills, although some limit payouts to a percentage of what they consider “usual and customary” fees, which may be lower than what vets actually charge.

As with insurance for people, consumers need to look closely at how the out-of-pocket charges on pet insurance are structured. Pet plans offer a range of deductibles, some as high as $1,000 a year. These may be levied on an annual basis, or charged anew for each illness or incident.

Congenital conditions, behavior modification and pregnancy-related costs are often not included, in addition to pre-existing health issues. VPI is beginning to introduce a cat-focused plan that offers limited payouts for certain common feline issues, like chronic kidney failure.

At least two companies, Embrace and Petplan, offer coverage of alternative treatments such as acupuncture and chiropractic.

Many policies now include coverage for hereditary conditions. It’s often worth paying for this, particularly for pure-bred dogs. Each insurer has its own lists of genetic illnesses, and they vary somewhat, says John Albers, executive director of the American Animal Hospital Association.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

By ANNA WILDE MATHEWS

Disability-insurance benefits from the workplace and the government are getting harder to come by—and that’s putting more pressure on consumers to purchase their own coverage in case a medical condition keeps them from working.

But disability insurance can be confusing. Policies may include conditions that make it tough for people filing claims to actually qualify for the benefits. And some policies may limit payouts for certain diagnoses, particularly mental illness. To protect themselves, consumers considering buying disability coverage need to read the fine print.

The percentage of companies that paid all or part of the cost of workers’ private long-term disability insurance fell to 48% last year, from 59% in 2002, according to LIMRA, an association of financial-services and insurance companies. Many employers are “taking a step back in terms of what they pay and putting the onus on employees” to purchase richer benefits if they choose, says Michael Bailey, a principal at Mercer, a consulting unit of Marsh & McLennan Cos.

At the same time, disability claims are pouring in to the Social Security Administration, and that’s resulting in bigger backlogs. The agency expects claims to jump to 3.3 million in the current fiscal year, ending Sept. 30, from 2.6 million two years earlier. That’s led to a greater number of cases pending—about 794,000 this month, up from about 557,000 in late 2008.

“With the number of cases rising and the number of claims awaiting a decision,” the waiting time for claims to be processed could tick upward, an agency spokesman said. He attributed the increase in claims largely to out-of-work people scrambling to make up for lost income.

What that means is that consumers should understand what benefits they might currently be able to access, and consider purchasing additional coverage to make up any shortfall.

Government Safety Net

Start by understanding what the government can provide. Social Security is only available to those with a condition that is either expected to leave them unable to work for at least a year, or is terminal. For those who do qualify—around 36% on average on the first application, though more win benefits after appealing—the payout averages just 40% of their predisability income. For high earners, the share will be smaller.

Tom Klett, a consultant with Towers Watson & Co., says qualified applicants should count on waiting three to five months or longer to get Social Security disability benefits. And with the number of applicants growing, “if you’re depending on that [benefit], you’ve got problems,” he says. Consumers should also check if theirs is one of the few states that provide some additional disability benefits.

Buy a Policy at Work

Figure out what your employer provides. If it pays all, or even a share, of the premiums for disability insurance, that’s your best option. If this is the case, make sure you have both short-term coverage, which tends to last for a few months, and long-term, which often only starts paying after a set time period, often 90 to 180 days.

Watch for a possible gap between them, since some employers’ short-term policies may not stretch to when the long-term ones kick in.

Even if your employer makes disability a voluntary benefit, with the premium coming out of your paycheck, it’s likely to be a better deal than purchasing an individual policy on your own. Still, particularly if you are young and healthy, you might want to check with an insurance agent.

Keep in mind that if you are buying a policy through your employer, you might be able to pay the premiums from your paycheck on a pretax basis. But this will mean you will owe taxes on the payouts you receive after filing a claim. You should also check whether you will be able to keep the coverage if you leave that company.

Ilene Sturrock, 46 years old, of Los Angeles bought a short-term disability policy in 1998, through her job as an office manager. She kept paying the $56-a-month premiums, even though she left that employer years ago and is currently out of work. She’s used the benefits several times, including an eight-week break for surgery four years ago, and a three-month gap in 2007 when she broke her foot. “It pays off in the long run,” she says.

If you are buying an individual long-term disability policy, the initial premiums will be set based on factors including your age, health status and occupation, according to insurer Unum Group. You may have the option of a level premium, which won’t change over the life of the policy, or premiums that could rise at a fixed rate. If you’re joining your employer’s group disability policy, the premiums will be adjusted based on the claims history of the entire group.

A growing number of employers offer basic disability coverage and let workers buy more. But you’ll have to figure out how rich a benefit you need. Long-term disability insurance will generally pay a percentage of your predisability income—60% is common—and it may not include extras such as bonuses. Also, be aware that most private disability policies require you to apply for Social Security benefits, and then subtract the government payout from what the insurer pays, a move called an “offset.”

Plan for Health-Care Costs

In figuring out your likely expenses during a period of disability, keep in mind that if you are out of work for an extended period, you may lose your job, and have to start paying for health coverage. Though disabled people who receive Social Security benefits can qualify for Medicare, there is a two-year lag before the federal health coverage kicks in.

Another key thing to check is under what circumstances the disability insurance benefit will pay out. It’s better if the money is triggered when you can’t do your current job, says Andrew Imparato, chief executive of the American Association of People with Disabilities. But some policies say that if you can do any comparable job, you aren’t truly disabled.

—This will be the last Healthy Consumer column, though I will continue writing about some of the same issues for the Journal. The best part has been hearing from readers about their own health-care experiences, and I hope that will continue. Email anna.mathews@wsj.com.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

I am often frustrated when market commentators use the VIX as though it was the market’s “fear gauge.” Reporting its level as 19 (or 14 or 27) may be factually correct, but it can be woefully misleading when that single number is viewed as reflecting the level of unease among market professionals.

Anyone who uses a single VIX reading to calibrate bullishness, or bearishness, is making a mistake. The VIX—the CBOE market-volatility index—wasn’t developed to provide such a reading. Instead, it’s designed to measure the market’s expectation of 30-day volatility, using a range of Standard & Poor’s 500 index-option prices.

Because options traders are typically willing to pay more for protection during times of financial stress, implied volatilities tend to rise when markets become more uncertain. That leads to higher prices in the options used in calculating the VIX. This correlation between the level of the VIX and market uncertainty is why the index is called the “fear gauge” (a term coined by this column’s regular author, Steve Sears).

THE NATURAL QUESTION then is how to best use the VIX without being used by it.

The relationship between implied volatility—expectations of what will happen in the future—and historical volatility—what did happen in the past—is the basis for a significant amount of trading by options market makers and other pros at banks and hedge funds. Historical volatilities, by definition, provide a backward look at the activity of an underlying stock or index. We all know that prior results are no guarantee of future performance, yet historical volatility is frequently the basis for current options pricing.

It’s often easier to know where you are going if you know where you have been. If an option expires in 30 days, it’s convenient to use the 30-day historical volatility as a starting point. However, implied volatilities are frequently higher than historical volatilities. This reflects the incentive that options sellers require to provide protection and liquidity. Think of it as an insurance premium, if you will. Options on the S&P 500 are subject to this sort of trading behavior, which is directly reflected in the VIX.

In light of the market’s recent retreat from its highs, can the volatility index tell us something meaningful about market sentiment? The VIX is currently about 19, just below the 20 level that some people consider a dividing line between bullish and bearish markets. That compares with a 30-day historical volatility reading of roughly 11.5 for the SPX, which represents the S&P 500. Even the SPX’s five-day volatility level was only 13. This shows that options traders are willing to pay a significant premium for protection.

SHOULD WE THUS CONCLUDE that the VIX is flashing a warning signal? Not necessarily. The volatility index typically stands at a level well above the SPX’s historical volatility. In late March, as the market was inexorably rising, the VIX was at 15, typically considered a low reading. That indicated complacency to many market observers. The SPX’s historical volatility at that time, however, was 9. Even in that seemingly placid market, the VIX was telling us that higher volatility was coming…and it did arrive within the month. Although the VIX has risen amidst the choppy markets of the past few days, the current relationship between it and SPX historical volatility is similar to that found in a more sanguine market. Yes, the VIX’s elevated reading seems to reflect a higher level of market concern, but the differential is not yet worrisome.

Weathermen and markets both search for foolproof forecasting methods. Use the VIX like a barometer, not a thermometer. Go beyond its current reading to consider whether it is rising or falling and why. The volatility index isn’t perfect, but those who understand its purpose can use it to make more accurate market predictions. 

STEVE SOSNICK is the equity risk manager for Timber Hill, the options market-making unit of Interactive Brokers.

E-mail:
editors@barrons.com

By CASSELL BRYAN-LOW, JEANNE WHALEN and DANA CIMILLUCA

LONDON—News Corp.

Chairman and Chief Executive Rupert Murdoch on Wednesday faced a recitation of criticisms that have piled up at his door during a long career, including allegations that he uses his company’s newspapers to collect political favors and push his commercial interests.

Mr. Murdoch’s reply: They’re all “myths.”

The 81-year-old mogul appeared Wednesday before a judge-led public inquiry into press ethics that is examining the use of illicit reporting tactics in the media and allegations that journalists are too cozy with politicians.

News Corp. Chairman and CEO Rupert Murdoch faced questioning Wednesday before a press-ethics inquiry about whether he used the company to call in political favors and push his commercial interests. Bruce Orwall has details on Lunch Break. Photo: AP.

In four hours of testimony under oath, Mr. Murdoch repeatedly said that he hadn’t asked prime ministers, or would-be prime ministers, for favors and said his commercial interests didn’t influence where his newspapers stood on issues or political parties.

Wednesday’s appearance—which covered a wide swath of Mr. Murdoch’s career, but not much of his company’s recent scandals in Britain—was likely a prelude to a return visit on Thursday. Then, Mr. Murdoch is expected to face questioning about the long-running phone-hacking scandal that has battered the company and prompted the government to establish the inquiry.

On Wednesday, Mr. Murdoch conceded “abuses” had occurred at his company, referring to both phone hacking and other illicit reporting tactics. But he also distanced himself from some of the activities: “We have a very large company and I do run that company with a great deal of decentralization.”

The appearance came the day after his son James Murdoch, News Corp.’s deputy chief operating officer, was grilled about allegations that the company was too close to Jeremy Hunt, the British government minister who oversaw a regulatory review of what would have been the company’s biggest deal ever—its effort to gain full control of British Sky Broadcasting Group PLC.

That dust-up claimed a political casualty Wednesday when Adam Smith—a special adviser to Mr. Hunt—resigned over his role in the regulatory consideration of the BSkyB deal. Emails between Mr. Smith and a News Corp. aide suggested a tight alliance between the two sides while the BSkyB deal was under review.

In his resignation, Mr. Smith said he’d created a perception that News Corp. had “too close a relationship” with the government.

Mr. Hunt, meanwhile, received the “full support” of U.K. Prime Minister David Cameron in Parliament on Wednesday.

News Corp. also owns The Wall Street Journal.

At Wednesday’s session, the inquiry’s lead questioner, Robert Jay, led Mr. Murdoch through the company’s publishing history in Britain, which dates back to its 1968 acquisition of the News of the World.

Mr. Jay asked Mr. Murdoch about often-cited criticisms that he has allegedly sought to use his sizable media presence in the U.K. to influence politicians, spanning from Margaret Thatcher to Mr. Cameron, to get favorable decisions on commercial matters.

“I’ve never asked a prime minister for anything,” said Mr. Murdoch during his testimony, which was peppered with pauses as he appeared to be answering carefully.

Mr. Jay pressed Mr. Murdoch on his endorsement of Mr. Cameron and his Conservative Party in the 2010 election just before News Corp. launched its BSkyB bid. Specifically, Mr. Jay asked the media mogul whether the endorsement was motivated by a desire to install a government that he thought would be friendly to approving the BSkyB deal. Mr. Murdoch dismissed the assertion as “a complete myth.”

“We’ve never pushed our commercial interests in our newspapers,” Mr. Murdoch added.

Mr. Jay also asked Mr. Murdoch if he influences his editors indirectly. There are perceptions among some people, Mr. Jay said, that underlings need to be cautious about taking a different view than Mr. Murdoch’s.

Mr. Murdoch replied obliquely: “I do try very hard to set an example of ethical behavior and make it quite clear that I expect it…. But do I have an aura or charisma? I don’t think so.”

Some of those who have done battle with Mr. Murdoch over the years disputed elements of his accounts. Mr. Murdoch testified that, after the Sun withdrew its support for then-prime minister Gordon Brown in 2009, Mr. Brown told him that News Corp. had “declared war on my government and we have no alternative but to make war on your company.” Mr. Brown shot back Wednesday afternoon that Mr. Murdoch was “wholly wrong” and that he didn’t speak to the News Corp. executive about the decision.

During the testimony, Mr. Murdoch, asked about editorial independence at his papers, said Harold Evans, former editor of The Times who left in the 1980s, once behind closed doors asked him what he wanted him to say in the paper. Mr. Murdoch recounted that he said,” ‘Harry, that is not my job,’ ” Mr. Murdoch also said that Mr. Evans faced a staff insurrection.

Mr. Evans on Wednesday blasted Mr. Murdoch’s testimony, writing online in the Daily Beast, “Political independence was only one of the promises he made and broke.”

The Murdochs’ appearances this week mark another dramatic moment in a long-running scandal sparked by revelations that News Corp.’s now-closed News of the World tabloid illegally intercepted the voice mails of celebrities, politicians and crime victims in pursuit of scoops. The scandal has snowballed to include other allegations of wrongdoing, including bribing public officials and hacking emails, and have spread to other News Corp. media outlets.

“I feel great personal regret that we did not respond more quickly or more effectively,” Mr. Murdoch said in a witness statement released by the inquiry. Wednesday was Rupert Murdoch’s second public appearance in the U.K. in the wake of the phone-hacking scandal; last summer, he appeared before a committee of politicians but wasn’t under oath.

News Corp. has publicly apologized for wrongdoing at the tabloid and has said it is assisting police, who are conducting various criminal probes into illegal reporting practices.

Mr. Murdoch said he had close contact with the daily tabloid the Sun, but sought to distance himself from its former sister publication, the weekly News of the World, saying he personally hadn’t devoted much time to it—something he regretted.

There was also the occasional lighthearted moment. He was asked whether he recalled allegedly telling Tony Blair, prior to him becoming prime minister, that if their “flirtation” was ever consummated “I expect we would end up making love like porcupines–very, very carefully.”

Laughing, Mr. Murdoch acknowledged he might have said that.

—David Enrich contributed to this article.

Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com, Jeanne Whalen at jeanne.whalen@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

A version of this article appeared April 26, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Murdoch Bats Away ‘Myths’.