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Tuesday, April 08, 2003

Taxes May Always Squeeze Investors

by: Ki Kim

A new Lipper study, Taxes in the Mutual Fund Industry, finds that U.S. mutual fund investors in taxable accounts coughed up some $8.6 billion in 2002 to the government, despite poor stock returns and eight-year low distribution payouts.

Over the last ten years, taxable equity and fixed income mutual fund shareholders, on average, have given up almost 1.8 percentage points and 1.5 percentage points, respectively, in returns because of taxes, according to the fund tracker. As a result, shareholders are giving up, on average, over a quarter of their returns to the government.

In the taxable fixed income macro-classifications, the tax burden is often at least two times larger than any other component in working as a drag on performance after the second year, according to the report.

For equity funds, the pre-liquidation tax burden is generally two times larger than any other component of drags on performance for the ten-year period ended December 31, 2002. The Lipper study finds that declines in the equity market have recently softened the impact of taxes on returns for this asset class.

The new, downloadable study is free to investment professionals on the Lipper Web-site. 

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