Financial Planner

Answer: C - With tax-efficient investing, funds with a greater portfolio turnover ratio generate more tax consequences for their investors and the return of a mutual fund is stated before tax. Tax efficiency is defined as the ability to generate returns without generating large amounts of tax obligations. There is not tax obligation if a fund does not receive income or realize capital gains. If a fund sells securities with its portfolio, each sale results in a taxable event. Hidden capital gains result in unexpected taxes, but hidden capital losses offer tax-free gains.