SIE practice questionmediumETFs - Tax Efficiency
ETFs are often considered more tax-efficient than mutual funds due to:
- AIn-kind creation and redemption process✓ Correct answer
- BLower expense ratios
- CDaily redemption at NAV
- DUnlimited leverage
Explanation
Why A — In-kind creation and redemption process
The in-kind process allows ETFs to minimize capital gains distributions. Lower expenses may help, but B is not the primary reason; C describes mutual funds, and D is not generally true or relevant.
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