Why is Morningstar updating and improving its tax-related calculations?
Approximately half of all mutual fund assets in Canada are held in taxable accounts, yet pre-tax returns remain the sole focus of most performance analysis available to investors. This is despite the fact that after-tax returns may deviate considerably from pre-tax returns and that relative rankings between funds also deviate, potentially significantly, on an after-tax basis relative to a pre-tax basis. Taxes are a significant consideration for many investors who own mutual funds in taxable accounts. Fund managers control the amount of interest income, dividends and capital gains that are distributed by the fund; investors then pay taxes on those distributions. Investors also owe taxes on any capital gains they realize when they sell their units of a fund at a profit. Those taxes reduce investors’ real returns. Morningstar has updated its methodology for calculating tax-adjusted performance for mutual funds, and has developed new measures that will help investors concerned about the im
