Last year, mutual fund investors paid approximately $31.3 billion to the Internal Revenue Service, according to a recent study by Lipper. "Taxes in the Mutual Fund Industry" looks at the tax implication to investors of nearly $2.91 trillion in mutual funds held in taxable accounts.

"People are giving up at least 40% to 50% of their gross returns [to taxes, expenses and loads]," said Tom Roseen, research analyst and author of the study.

The study presents a worst-case performance scenario for an investor in the highest tax bracket who invested in the U.S. diversified equity fund group, a composite of equity funds that accounts for 80% of pure equity mutual funds. Over the last five years, an investor would have lost 40% of gross returns to taxes, fund expenses and loads, reducing a gross annualized return of 10.47% to 6.25%.

A similar scenario for a bond fund investor uncovered a loss of 86% of gross returns, reducing a gross annualized return of 5.81% to 0.81%.

Lipper's study uses the highest tax bracket, 38.6%, to calculate tax impact, following the guidelines set by the Securities and Exchange Commission for federal reporting of after-tax performance of mutual funds.

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