Compared to open-end mutual funds, exchange-traded funds generate much more capital gain income that must be distributed to their shareholders, who must pay tax on the gains.

Question

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Exchange-traded funds (ETFs) are generally more tax-efficient than open-end mutual funds because they can utilize in-kind transfers to manage their portfolios, which typically results in fewer taxable capital gain distributions to their shareholders.

Compared to Open-End Mutual Funds, Exchange-Traded Funds Generate Much More