tax-efficient fund

Tax-Efficient Fund

A mutual fund that invests in securities thought to give fund shareholders the least possible tax liability. Common securities in which a tax-efficient fund invests are municipal bonds, which are usually tax-free, and non-dividend paying stocks, which reduce a shareholder's capital gains tax liability. Tax-efficient funds often retain stocks in which they invest, as stocks held for more than a year are taxed at a lower capital gains rate. They are often thought of as an alternative to tax-deferred investment vehicles, such as 401(k)s and IRAs.

tax-efficient fund

A mutual fund that manages its investment portfolio so as to minimize the tax liability of its shareholders. A tax-efficient fund attempts to minimize capital gains distributions by reducing portfolio turnover and to minimize dividend payments to shareholders by concentrating on investments in companies with low dividend payouts.
References in periodicals archive ?
MUTUAL FUND PERFORMANCE Value in 2012 of $10,000 invested in 1990 in portfolios of domestic equity mutual funds Before tax After tax Tax-inefficient fund portfolio $55,800 $37,800 Tax-efficient fund portfolio $58,900 $48,800 Before tax scenario corresponds to the cumulative investment value if the fund is held in a tax-qualified retirement account.
The William Blair FCP provides a tax-efficient fund vehicle aimed at benefiting non-US based investors.
Pensions should also not be ignored in terms of both building up a tax-efficient fund and passing on wealth free of IHT (assuming that you do not need to take an income from the fund, which is a whole new area of wealth planning).
Morningstar warns that high tax-adjusted returns do not necessarily mean that a fund is tax-efficient; a very tax-efficient fund with poor returns may result in low after-tax results.
The disclosure is not required to appear in advertising unless the fund is presented as a tax-efficient fund. In the case that the fund does choose to include the after-tax returns in advertising material, the after-tax returns should be computed according to the standardized formula provided by the SEC.
"For balance," says Reading, "Guy's portfolio holds Vanguard Value Index Fund (VIVAX), which holds the low-priced value stocks in the [Standard & Poor's 500-stock index]." Like most index funds (especially Vanguard index funds), it is a low-cost, tax-efficient fund because the managers do relatively little trading.
A tax-efficient fund has more long-term capital gains and less investment income and short-term gains.
This is a missed opportunity to build a buffer to absorb shocks associated with unexpected health care expenses and, for those more fortunate, to accumulate additional tax-efficient funds for later in life.
As such, it may be advisable to utilize ETFs for the stock exposure (due to their preferential treatment on year-end capital gain distributions), use tax losses to offset gains, and select more tax-efficient funds. Although it may not be wise to place taxes at the front of the line -- which is like the tail wagging the dog -- it is an important factor to consider when constructing and managing a client's portfolio.
Tax-efficient funds aim to minimize the distributions that are made to shareholders, thereby limiting the amount of income that must be declared.
Tax-efficient funds: Tax-efficient funds (such as index funds) are excellent long-term savings vehicles due to their low turnover, which reduces capital gains distributed over the investment's life.
Appropriate solutions for HNW individuals and small-business clients will be driven by asset allocation, risk management, consolidated statements and some alternative investment classes such as real estate and tax-efficient funds. These solutions will be delivered through a comprehensive financial plan crafted by an experienced professional.