2009 CFA Exam Q7 A

Could sombody explaing the second reasoning , where it says that passive approach has low turnover, and coz foundation is taxed on realized cap gains and investment income, the passive approch will result in lower taxes

high turnover = realized gains = higher taxes

passive investing = buy and hold = little or no selling = no cap gains = low taxes

what dont you understand?

If you are passive then you are are mainly NOT changing anything, or barely lets say trading… then your turnover is low… i dont think it can get simpler than this.