Tax-Efficient Asset Management: Evidence from Equity Mutual Funds

NBER Working Paper No. 21060

Issued in April 2015

NBER Program(s):Asset Pricing, Corporate Finance, Public Economics



Investment taxes have a substantial impact on the performance of taxable mutual fund investors. Mutual funds can reduce the tax burdens of their shareholders by avoiding securities that are heavily taxed and by avoiding realizing capital gains that trigger higher tax burdens to the funds’ investors. Such tax avoidance strategies constrain the investment opportunities of the mutual funds and might reduce their before-tax performance. Our paper empirically investigates the costs and benefits of tax-efficient asset management based on U.S. equity mutual funds. We find that mutual funds that follow tax-efficient asset management strategies generate superior after-tax returns. Surprisingly, more tax-efficient mutual funds do not underperform other funds before taxes, indicating that the constraints imposed by tax-efficient asset management do not have significant performance consequences.

A non-technical summary of this paper is available in the August 2015 NBER Digest. You can sign up to receive the NBER Digest by email.



Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w21060

Published: CLEMENS SIALM & HANJIANG ZHANG, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," The Journal of Finance, vol 75(2), pages 735-777. citation courtesy of

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