Index Mutual Funds and Tax Efficiency

BY MARK S. GLOCHOWSKY

One point that needs to be made about “A Taxing Problem” ( JofA, May00, page 51) relates to the tax efficiency of index mutual funds.

Due to their extremely low distributions, index funds tend to function in a manner similar to tax-managed funds. Index funds also have lower expense ratios and an ongoing verifiable history of performance—both of which are obviously critical to the decision-making process.

Perhaps the only time a distribution might occur, other than in a dividend distribution, is when there is a change in the composition of the index. Nevertheless, current low dividend yields are a persuasive argument in favor of index funds.

I believe that with a little research, an investor can construct a highly tax-efficient portfolio using the variety of index funds currently available and, at the same time, maintain performance with a minimum of risk per unit of return.

I would like the JofA to address these points in future articles.

Mark S. Glochowsky
Senior Accountant
Gerber Plumbing Fixtures Corp.
Chicago

SPONSORED REPORT

Cybersecurity threats proliferating for midsize and smaller businesses

This report details how SMBs can properly protect private information from breaches, design and implement a cybersecurity policy, and create safeguards for training and education.

QUIZ

News quiz: Senate health care bill in the spotlight

Reports related to the Republican bill to repeal many provisions of the PPACA, other tax issues, and the giant AICPA ENGAGE Conference offered a diverse reading list for June. See how much you know about recent news with this short quiz.