Tax-efficient or not?

Why do I care?
If you want to eek out as much money as possible from your investments, you will choose tax-efficient funds to put into types of investments that you have to pay taxes on now: stocks, general money market and mutual funds. You can put tax-inefficient funds into investments you don't yet to have to pay taxes on, such as 401(k) and Roth and Traditional IRAs (this money grows tax-free).

How do I know if my fund is tax-efficient?
Source: USA Today

If a fund is tax-efficient, you the investor will not pay as much in taxes. A tax-efficient fund does less buying and selling from within (therefore not a lot of capital gains and not a lot of tax money due) and invests in companies with low dividend payouts.

* Look for low tax-cost ratios, found at Morningstar.
A ratio of 1 means that the fund gave up an average of 1 percentage point to taxes over time. So if a fund boasts a 13% return on money, you'd only get 12% return if the tax ratio was 1 %.
* Look for funds sold as "tax-managed" funds.
* Index funds, particularly large-company index funds, also tend to be tax-efficient. The funds simply track a stock index, such as the Standard & Poor's 500-stock index. These funds tend to trade infrequently.

Tax-inefficient funds
Source:Morningstar

Tax-inefficient funds are ones that cause your tax bill to rise.
* Ones that have high tax-cost ratios
* Funds that trade a lot, and thus generate heavy short-term gains
* Bond or REIT funds.
* High-turnover stock funds.