Mutual Fund Tax Efficiency
- Topics:
- Commercial Lending
- Tags:
- Finance,
- Financial Planning,
- FinancialCounsel.com,
- Free Trade,
- Mutual Fund,
- Mutual Fund Performance,
- Tax Efficiency,
- Taxes
- Source:
- FinancialCounsel.com
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Overview: Mutual fund performance is commonly measured in gross (i.e. pre-tax and pre-inflation) returns. Unlike inflation, the impact of taxes on equity returns varies widely among investors. While some investors have a high marginal tax rate, others have a very low one. Inflation, on the other hand, is uniform in its effect upon equity returns and its impact cannot be delayed or avoided. In contrast, investments in tax-sheltered accounts and tax-exempt accounts can delay or eliminate taxation. In short, the impact of taxes B as a component of total return B is much more manipulability than is the generalized impact of inflation. Tax efficiency is considered as a secondary goal for many investors. Their primary goal will likely be either safety of principal or growth of principal. This is an important realization inasmuch as there is little satisfaction in owning a tax efficient fund, which generates very poor gross returns. The best of all worlds is, of course, a fund, which generates high returns both before and after tax. In recent years, that best world has been made up primarily of growth funds.
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Format: HTML | Date: Dec 2000 | Pages: 1
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