The Securities and Exchange Commission announced today that it had adopted rules requiring mutual funds to disclose standardized after-tax returns. The rules are designed to help investors understand the magnitude of tax costs and compare the impact of taxes on the performance of different funds. Today's Commission action, which shares the goals of Congressman Gillmor's legislation, will provide investors with this improved information.
Taxes are one of the most significant costs of investing in mutual funds.
Despite the dollars at stake, many investors lack a clear understanding of the impact of taxes on their mutual fund investments, particularly the fact that differences in fund investment strategies can produce markedly different tax consequences. Today's action addresses the gap between the importance of taxes to mutual fund investors and the knowledge that investors have about taxes. The following provides background information and more details on the Commission's action. Recent estimates suggest that more than two and one-half percentage points of the average stock fund's total return is lost each year to taxes. The size of the tax-bite depends on several factors, including the level of portfolio trading and the amount of gains realized on trades, as well as the degree to which the manager uses portfolio losses to offset realized gains.