Tax Cost Ratio

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Definition

The Tax Cost Ratio refers to the amount that a fund's annualized return is reduced by taxes that investors pay on distributions (including stock and bond dividends and capital gains distributions).

Also known as tax efficiency, is important for investors to look at because it gives them a clear idea of how much the annualized returns will be reduced by taxation.

For example, if a fund has a Tax Cost Ratio of (5Y) of 0.9%, it means on average investors lost 0.9% of their assets in taxes each year over the past 5 years.

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