SIE practice questionmediumETFs
A unique tax advantage of ETFs over open-end mutual funds is that ETFs:
- AMust distribute all profits annually
- BGuarantee tax-free returns to investors
- CCan minimize capital gains distributions through in-kind redemption✓ Correct answer
- DAre exempt from U.S. income taxation
Explanation
Why C — Can minimize capital gains distributions through in-kind redemption
A is correct; ETFs use in-kind redemptions to limit capital gains distributions. B and D are false—returns are not guaranteed or tax-exempt. C is inaccurate for both mutual funds and ETFs.
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