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Robin Bowerman is head of corporate affairs at Vanguard Investments Australia. Vanguard manages a number of index and ETF funds.

Closing the door on another tax year tends to focus investors' minds on the one calculation which should be valued above all others - the return figure after tax and after costs.

That is the real measure of an investment - what you get to put in your back pocket at the end of the day.

Many investors underestimate the effect of tax on their returns. Your financial plan is likely based on a realistic long-term average annual return, but keeping tax bills low can help compound your returns up.

Tax and fees typically represent the biggest cost impact on any investment's net return - and so a focus on minimising the tax bill is a smart approach - while, of course, also keeping an eye on the fees charged to invest at the same time.

In the past two years the focus on after-tax return figures has been understandably distracted by the impact of the global financial crisis on portfolio values and investors being more concerned by tax losses than tax costs. As the dust settles, however, and market volatility returns to a more normal level, investors should refocus on their portfolio costs and tax.

One of the advantages of index-based ETFs [exchange-traded funds] and unlisted index funds is their potential for tax efficiency. An index manager does not make bets on specific stocks, so there is no driver to buy and sell stocks unless the index changes. By maintaining a lower turnover of securities in the fund portfolio, capital gains realisations are kept to a minimum.

Investing in funds, such as index funds or ETFs, that have a low turnover of securities (that is, they buy and sell securities relatively infrequently) can reduce your capital gains tax liability and improve your after-tax returns.

A manager's investment approach can significantly impact the amount of tax you pay at the end of the financial year.