I want very specific reason please 
Thanks
ETFs are redeemed in-kind whereas Mutual funds are not. Mutual funds pay taxes out of the fund itself so current shareholders must pay the tax burden even if they are at a loss, whereas the tax burden in an ETF is passed onto the investor when the redeem.
How about those da*n capital gain distrubtion. Your/My worst call is “You jackass, my mutual fund is down 15%, and I am looking at my capital gain distribution, I have to X amount in taxex?” “Mr. Client, yes, you still have to pay taxes on those capital gain distriubiton.”
bigwilly Wrote: ------------------------------------------------------- > ETFs are redeemed in-kind whereas Mutual funds are > not. Mutual funds pay taxes out of the fund > itself so current shareholders must pay the tax > burden even if they are at a loss, whereas the tax > burden in an ETF is passed onto the investor when > the redeem. But you get tax credit for that stuff…
^That never made sense to me, totally uncool of Mutual funds. I invest on December 29th and the fund is down 2%, I still have to pay taxes on the Cap gains for the whole year, on the GAINS I never received - totally stupid…
-ETFs: The following aren’t considered taxable transactions when selling to other holders or ETF redemptions. -mutual funds all transactions are considered sales and are taxable… -MFs you are paying the cost of someone else’s liquidity (their ability to sell) in the form of higher yearly fees that;s all i got
Investor in MF recoginze tax consequence (even if they don’t sell/buy) when the MF manager buy/sell
But still you have to pay taxes on mutual fund cap gains on the fund as a whole and not your individual gain/loss. ETFs you only pay on your own gain/loss so they are more tax efficient.
Guys, but you get tax credit if you are paying taxes for gains u never received and your cost basis are getting adjusted…
Another point about ETFs that is probably outside the scope of the curriculum is that when they are redeemed in-kind, the ETF company can choose which shares to deliver. They can deliver the low cost basis shares and hold the high cost basis shares which results in holding less positions that have unrealized gains. This can be especially important for ETFs that track an equal-weighted index.
Atl least I am not aware any tax credit you can use for receiving cap. gain distriubtion from MF.
But still you have to pay taxes on mutual fund cap gains on the fund as a whole and not your individual gain/loss. ETFs you only pay on your own gain/loss so they are more tax efficient. ^ bigwilly, would this benefit you for capital loss for tax purposes?
comp_sci_kid Wrote: ------------------------------------------------------- > bigwilly Wrote: > -------------------------------------------------- > ----- > > ETFs are redeemed in-kind whereas Mutual funds > are > > not. Mutual funds pay taxes out of the fund > > itself so current shareholders must pay the tax > > burden even if they are at a loss, whereas the > tax > > burden in an ETF is passed onto the investor > when > > the redeem. > > But you get tax credit for that stuff… No you don’t. You don’t even get a deduction for it. All you get is a slightly stepped up basis and a tax bill. You pay taxes now so you maybe don’t have to pay as many taxes later. Edit: For mutual funds you buy at $10. They distribute $1 in capital gains in 2008. You pay tax in 2008. Your basis is now $11. Mutual fund goes to 16 and you sell in 2009. You pay cap. gains. on 16 - 11 = 5. If the mutual fund goes to 3 and you sell in 2009 you have a 8 loss. If you don’t sell until 2045 you paid taxes on someone else’s gain only to get a deduction 40 years later.
JoeyDVivre Wrote: ------------------------------------------------------- > comp_sci_kid Wrote: > -------------------------------------------------- > ----- > > bigwilly Wrote: > > > -------------------------------------------------- > > > ----- > > > ETFs are redeemed in-kind whereas Mutual > funds > > are > > > not. Mutual funds pay taxes out of the fund > > > itself so current shareholders must pay the > tax > > > burden even if they are at a loss, whereas > the > > tax > > > burden in an ETF is passed onto the investor > > when > > > the redeem. > > > > But you get tax credit for that stuff… > > > No you don’t. You don’t even get a deduction for > it. All you get is a slightly stepped up basis > and a tax bill. You pay taxes now so you maybe > don’t have to pay as many taxes later. exactly, so it is not like you are overpaying taxes, it is that you are losing on timevalue, right?
comp_sci_kid Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > comp_sci_kid Wrote: > > > -------------------------------------------------- > > > ----- > > > bigwilly Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > ETFs are redeemed in-kind whereas Mutual > > funds > > > are > > > > not. Mutual funds pay taxes out of the > fund > > > > itself so current shareholders must pay the > > tax > > > > burden even if they are at a loss, whereas > > the > > > tax > > > > burden in an ETF is passed onto the > investor > > > when > > > > the redeem. > > > > > > But you get tax credit for that stuff… > > > > > > No you don’t. You don’t even get a deduction > for > > it. All you get is a slightly stepped up basis > > and a tax bill. You pay taxes now so you maybe > > don’t have to pay as many taxes later. > > > exactly, so it is not like you are overpaying > taxes, it is that you are losing on timevalue, > right? Right.
^I agree…however, investor doesn’t have the patience to sit down and do the math. All they see in front of them is that their MF is down 15%, and they have to pay taxes on a losing position.
Anyone remember where in the curriculum it states that for some investors under certain scenarios, a mutual fund is more appropriate than an ETF? I could swear I read that somewhere…was it if the MF has a large asset base and can charge a lower fee than a similar ETF?
MPT Wrote: ------------------------------------------------------- > Anyone remember where in the curriculum it states > that for some investors under certain scenarios, a > mutual fund is more appropriate than an ETF? I > could swear I read that somewhere…was it if > the MF has a large asset base and can charge a > lower fee than a similar ETF? all i know is ETF licensing fees are high
ETFs normally have lower fees b/c there is no shareholder accounting.
Did we just determine that MF industry is a dying industry if they don’t transform themselves??