What is meant by after-tax return?

After-tax return refers to the actual return on an investment after accounting for taxes that may be applicable to gains or income earned from that investment. This concept is important for investors as it provides a more realistic view of the earnings they can expect to retain in their portfolios, as taxes can significantly reduce the overall profitability of investment returns.

When evaluating investment opportunities, understanding after-tax returns helps investors make informed decisions by considering how tax liabilities affect their net gains. This is particularly crucial in investment vehicles that may be subject to capital gains taxes or income taxes on dividends. Consequently, after-tax return reflects the true benefit that investors will receive from their investments.

Other options do not align with the concept of after-tax return; for example, total return before taxes does not account for the tax impact, while definitions focused solely on appreciation or the annual return rate of a mutual fund do not specifically consider the tax implications on the returns achieved through gains or income.