Something I learned recently on why ETFs in the US are preferred over MFs. 😬

US mutual funds are pass-through vehicles—if they generate capital gains, these must be distributed to unit holders who pay the taxes on the gains which makes MFs less tax-efficient. ETFs avoid this through ‘in-kind’ creation/redemption that washes away gains. This tax advantage is significant. This is one underrated reason for the popularity of index funds, especially ETFs in the US.

In India, both MFs and ETFs don’t pass taxes to unit holders, while PMS and CAT 1 and 2 AIFs taxes are passthrough.

Go to link →