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Low turnover is among the factors that help these funds keep the tax bite in check for shareholders.

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Many investors focus solely on total return when assessing fund performance, which is understandable given that what drives them to invest in the first place is the potential for a fund to help their assets grow. However, looking at total return alone won't tell investors the whole story in terms of how much money the fund has made (or lost) them. That's because total-return statistics don't reflect how much of a fund's gains and income is lost to taxes.

All investments held in taxable accounts are, well, taxable. This means that when a fund held in a taxable account sells holdings that have appreciated in price (gains) or receives dividends or interest from its holdings (income) those gains and income are passed on to shareholders, who must then pay taxes on them. (This is not an issue for investments held in tax-advantaged accounts such as IRAs and 401(k)s.) That's in addition to any gains the shareholder must pay taxes on for selling his own shares of the fund.

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Adam Zoll has a position in the following securities mentioned above: DODFX. Find out about Morningstar’s editorial policies.