Hi, I am not sure if the following sentence is correct about the tax advantage of ETFs over Index mutual funds. I think the tax advantage exists only if ETF shares are exchanged for underlying basket of shares. Please comment. 'When investors want to liquidate their ETF shares, they sells to another investor, which is not a taxable event for the ETF. ’ Ref: Schweser, Book 3, Page 128. Thanks, MG.
when you sell redeem a mutual fund, the MF has to sell the shares to pay you. if there is a gain in price, this will create a tax liability for the MF which other MF holders will have to bare. when you sell a ETF you are not redeeming so no tax liability to anyone but you.