by Donn J. Sinclair, MBA June 22, 2022
Exchange Traded Funds (ETFs) have become very favored investment vehicles in recent years. These ETFs built upon the advantages of their mutual fund cousins, and offer several distinct enhancements. On average ETFs may be even more tax efficient than mutual funds, plus the ETFs frequently offer lower fees and expenses. Another distinct advantage is their more flexible trading than indexed mutual funds.
ETFs normally boast two distinct tax advantages versus mutual funds. Mutual funds normally generate more capital gains taxes than ETFs. Of note also is that ETF capital gains are only incurred upon a sale; whereas, mutual funds normally pass on capital gains throughout the investor’s ownership. Frequently mutual funds will report capital gains distributions even when the investor has not sold any shares that year.