Tax-Efficient Fund

Tax-Efficient Fund
A mutual fund in which structure and operations are based on reducing the tax liability that its shareholders face. Reducing the tax liability of a fund is done in three main ways:

1. By purchasing tax-free (or low taxed) investments such as municipal bonds.
2. Keeping the fund's turnover low, especially if the fund invests in stock. Stocks held for more than one year are taxed at a lower long-term capital gains rate than short-term transactions.
3. Avoiding or limiting income-generating assets, such as dividend-paying stocks, which create a tax liability at each dividend issuance.

Because tax-efficient funds have a low tax liability, they are often good investments to make outside of a tax-deferred account. This is because there is a minimal amount of tax to be deferred and the space in an investor's tax-deferred account is better suited for higher taxed securities, such as dividend-paying stocks.

To determine how much you will save in this type of fund compared to other funds, review the investment company's and/or mutual fund's tracking services for statistics regarding a fund's historic tax costs.


Investment dictionary. . 2012.

Игры ⚽ Поможем сделать НИР

Look at other dictionaries:

  • tax efficiency — tax efficient ˌtax efˈficient adjective TAX a tax efficient way of doing something makes it possible for you to pay less tax: • It would be more tax efficient to register the holding company in the U.S., rather than in Europe. • A pension is a… …   Financial and business terms

  • Tax haven — A tax haven is a place where certain taxes are levied at a low rate or not at all. Individuals and/or firms can find it attractive to move themselves to areas with lower tax rates. This creates a situation of tax competition among governments.… …   Wikipedia

  • Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 — Effective (Various dates for different provisions) Citations Public Law Public Law 111 312 Stat …   Wikipedia

  • Tax — Taxation An aspect of fiscal policy …   Wikipedia

  • Tax protester (United States) — Part of a series on Taxation Taxation in the United States …   Wikipedia

  • Tax protester statutory arguments — Part of the Taxation in the United States series Tax protest in the United States …   Wikipedia

  • Exchange-traded fund — An exchange traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.[1] An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs… …   Wikipedia

  • Index fund — An index fund or index tracker is a collective investment scheme (usually a mutual fund or exchange traded fund) that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held… …   Wikipedia

  • United Kingdom corporation tax — Throughout this article, the unqualified term pound and the £ symbol refer to the United Kingdom pound. Taxation in the United Kingdom This article is part of the series: Politics and government of the United Kingdom Central government …   Wikipedia

  • Carbon tax — Part of a series on Green economics Concepts …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”