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| Basics | Funds | Allocation | Retirement | Investing | Terms | FAQ | |
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Tax-conscious and tax-managed funds are mutual funds, usually equity funds, that employ special management techniques to keep taxes on the portfolio to a minimum. While they can significantly reduce an investor’s tax liability compared to regular equity funds, they do not promise tax-free returns. These funds run the gamut as to how aggressively they seek to limit taxes. Generally, tax-managed funds take a slightly more active approach to tax reduction than tax-conscious funds. Some funds are just low turnover funds, meaning they seek to limit taxes solely by limiting portfolio turnover, which decreases the fund’s capital gains liability. Index funds are sometimes categorized this way, because they may tend to have lower turnover as a result of investing in the securities that compose a certain index. Other funds employ a number of techniques, including buying stocks with relatively low dividends, and selling depreciated securities to offset capital gains liabilities.
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