This is the time of year when advisors and investors start talking about the tax implications facing portfolios, and that includes portfolios comprised of exchange-traded funds.
Due to the fact that most ETFs are passively managed, capital gains distributions in this asset class are usually rare.
ETFs And Tax Implications
Distributions are paid to investors from the capital gains of the firm's investment portfolio. For example, when a mutual fund manager turns a profit on a trade and closes the position, the fund's shareholders, not the sponsor, are saddled with the tax liability. Most ETFs do not distribute capital gains to investors, which makes the asset class typically more tax efficient than mutual funds.
“Moreover, ETFs are also generally more tax efficient than mutual funds because of how new ETF shares are created and redeemed. When an individual ...
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