Friday, 10 Oct 2025
  • Contact
  • Privacy Policy
  • Terms & Conditions
  • DMCA
logo logo
  • World
  • Politics
  • Crime
  • Economy
  • Tech & Science
  • Sports
  • Entertainment
  • More
    • Education
    • Celebrities
    • Culture and Arts
    • Environment
    • Health and Wellness
    • Lifestyle
  • 🔥
  • Trump
  • VIDEO
  • House
  • White
  • ScienceAlert
  • Trumps
  • Watch
  • man
  • Health
  • Season
Font ResizerAa
American FocusAmerican Focus
Search
  • World
  • Politics
  • Crime
  • Economy
  • Tech & Science
  • Sports
  • Entertainment
  • More
    • Education
    • Celebrities
    • Culture and Arts
    • Environment
    • Health and Wellness
    • Lifestyle
Follow US
© 2024 americanfocus.online – All Rights Reserved.
American Focus > Blog > Economy > Exchange-traded funds have ‘tax magic’ that many mutual funds don’t offer
Economy

Exchange-traded funds have ‘tax magic’ that many mutual funds don’t offer

Last updated: January 1, 2025 10:32 am
Share
Exchange-traded funds have ‘tax magic’ that many mutual funds don’t offer
SHARE

Exchange-traded funds (ETFs) have long been touted for their tax advantages over mutual funds. The difference lies in the structure of these investment vehicles, which can have a significant impact on the tax bill incurred by investors.

ETFs and mutual funds both consist of baskets of stocks, bonds, and other financial assets managed by professionals. However, ETFs have a unique “tax magic” that sets them apart from mutual funds, according to Bryan Armour, the director of passive strategies research for North America at Morningstar.

One of the key advantages of ETFs is their ability to minimize capital gains distributions, which are taxes owed on investment profits. Fund managers can generate these taxes within a fund when buying and selling securities, passing them on to shareholders. However, ETFs utilize a mechanism called “in-kind creations and redemptions,” which allows for tax-free trades for many ETFs. This mechanism involves large institutional investors creating or redeeming ETF shares directly with the ETF provider.

This tax advantage is particularly noticeable for stock funds, with over 60% of stock mutual funds distributing capital gains in 2023 compared to just 4% of ETFs. Morningstar estimates that less than 4% of ETFs will distribute capital gains in 2024, highlighting the tax efficiency of these investment vehicles.

It’s important to note that this tax advantage is most relevant for investors holding funds in taxable accounts, as retirement accounts like 401(k) plans and individual retirement accounts already come with tax benefits.

While ETFs generally offer tax advantages over mutual funds, there are exceptions. Certain ETF holdings, such as physical commodities and derivatives like swaps and futures contracts, may not benefit from in-kind transactions. Additionally, some countries may treat in-kind redemptions of securities domiciled in those countries as taxable events.

See also  Can a Constitution Limit the State?

In summary, ETFs offer significant tax advantages for investors in taxable accounts, providing greater tax efficiency compared to mutual funds. However, it’s essential to consider the specific holdings and potential tax implications when choosing between ETFs and mutual funds for your investment portfolio.

TAGGED:DontexchangetradedfundsMagicMutualoffertax
Share This Article
Twitter Email Copy Link Print
Previous Article Circular Economy Progress in 2025, and Predictions for 2025 Circular Economy Progress in 2025, and Predictions for 2025
Next Article Cool Ways To Rock The Butter Yellow Fashion Trend Cool Ways To Rock The Butter Yellow Fashion Trend
Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Popular Posts

Imma tear the league back down

Miami Heat's Tyler Herro recently underwent surgery on his left foot after sustaining an injury…

September 19, 2025

Adjustable-rate mortgages are staging a comeback as buyers seek lower rates

Adjustable-rate mortgages (ARMs) are making a comeback in the housing market after falling out of…

September 20, 2025

6 Powerful Strategies You Can Start Using Today

Fear is a powerful emotion that can hold us back from trying new things, pursuing…

September 11, 2024

The Man Who Discovered the Potential Cancer Treatment Big Pharma Doesn’t Want You to Know About |

(Note: We appreciate your support for businesses like the one featured in the sponsored message…

July 4, 2025

Love Island USA: How Cast Members Learn About Contestant Removals

Love Island USA cast members are often left in the dark when a fellow islander…

June 8, 2025

You Might Also Like

When Godzilla Breaks Windows
Economy

When Godzilla Breaks Windows

October 10, 2025
Peter Schiff Describes Bitcoin’s Jump Over 6,000 As ‘Bear Market Rally’: ‘Too Early For Bitcoiners To Get Excited…’
Economy

Peter Schiff Describes Bitcoin’s Jump Over $126,000 As ‘Bear Market Rally’: ‘Too Early For Bitcoiners To Get Excited…’

October 10, 2025
Veteran analyst drops sharp take on GTA 6 hype
Economy

Veteran analyst drops sharp take on GTA 6 hype

October 10, 2025
Nvidia’s Jensen Huang Says AI Demand Is Up ‘Substantially’ This Year, and Still Growing
Economy

Nvidia’s Jensen Huang Says AI Demand Is Up ‘Substantially’ This Year, and Still Growing

October 10, 2025
logo logo
Facebook Twitter Youtube

About US


Explore global affairs, political insights, and linguistic origins. Stay informed with our comprehensive coverage of world news, politics, and Lifestyle.

Top Categories
  • Crime
  • Environment
  • Sports
  • Tech and Science
Usefull Links
  • Contact
  • Privacy Policy
  • Terms & Conditions
  • DMCA

© 2024 americanfocus.online –  All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?