Concept · Funds, wrappers and fees
What is a fund's tax cost ratio?
Direct answer Morningstar's measure of how much of a fund's annual return its investors lost to tax on distributions, assuming the highest federal rates and no state tax. Over the ten years to 2024 the average stock mutual fund's was 1.9% a year and the average stock ETF's 0.7%.
It measures drag from distributions only, not the tax due when you sell your own shares. For a fund held in a taxable account it is the number to put next to the expense ratio. Read why ETFs pay less tax than mutual funds.
Sources
- Morningstar tax cost ratio, ten years to 2024, as reported by American Centuryamericancentury.com
- Morningstar glossary, tax efficiencyawgmain.morningstar.com
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