SIE practice questionhardETFs
Which tax characteristic is a major advantage of ETFs over mutual funds?
- AGuaranteed step-up in cost basis
- BTax-free interest income
- CExemption from dividend taxes
- DLower likelihood of capital gains distributions to shareholders✓ Correct answer
Explanation
Why D — Lower likelihood of capital gains distributions to shareholders
ETFs use in-kind redemptions to minimize capital gains distributions. Interest and dividends are still taxable, and no step-up is guaranteed.
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