Course 403: Exchange-Traded Funds
Taxes
In this course
1 Introduction
2 What You Want to Invest In
3 Taxes
4 Costs
5 Using ETFs for Portfolio Construction

ETFs are also structured to shield investors from capital gains better than conventional funds. Most ETFs are index funds, so they typically trade less than most actively managed funds and should generate fewer taxable capital gains. Also, because most investors buy and sell ETF shares with other investors on an exchange, the ETF manager doesn't have to worry about selling holdings--thereby triggering capital gains--to meet investor redemptions. Moreover, because the big institutions can make share redemptions "in-kind" (rather than redeem shares for cash, the ETF gives the institution a basket of stocks equal in value to the share redemption), ETFs can unload their lowest-cost-basis stocks in the portfolio, thereby reducing their capital gains exposure.

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