Investors who are interested in maximizing the after-tax returns of their mutual fund holdings may wish to consider investing in a tax-efficient fund. Tax-efficient funds seek to achieve long-term capital appreciation while limiting taxable distributions of capital gains and dividends. This approach attempts to reduce the effects of federal taxation on an investor’s long-term return potential and to increase after-tax return compared with similar funds for which tax efficiency is not a primary goal.
- Tax-Efficient Equity Fund
The Tax-Efficient Equity Fund, which was introduced in 2000, seeks to maximize long-term growth of capital on an after-tax basis by investing primarily in the common stocks of mid-size and, to a lesser extent, small companies. To keep taxable distributions to a minimum, the fund limits exposure to higher-yielding stocks and utilizes a buy-and-hold strategy. At the same time, it employs a targeted selling strategy to attempt to offset potential gains with capital losses.