Index funds offer tax advantages because

Question

Quizplus · Accepted Answer

Index funds typically have lower turnover rates than actively managed funds, which means they generate fewer capital gains through trades, resulting in lower tax liability for investors. Option A is incorrect because frequent trading generates more capital gains, which can lead to higher taxes. Option C is also incorrect because higher MERs (management expense ratios) can actually increase taxable distributions. Option D is incorrect because index funds do receive dividends and interest, which are taxable.

Index Funds Offer Tax Advantages Because