Why ETFs in US are preferred over mutual funds: Nithin Kamath explains
ETFs) have gained popularity in the US, often being favoured over mutual funds, Zerodha’s founder and CEO Nithin Kamath posted on social media platform X.
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US mutual funds operate as pass-through vehicles, which means that if the fund generates capital gains, these gains must be distributed to unit holders who pay taxes on these gains. This makes mutual funds less tax-efficient.
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View Details» <div data-placement=«Mid Article Thumbnails» data-target_type=«mix» data-mode=«thumbnails-mid» style=«min-height:400px; margin-bottom:12px;» class=«wdt-taboola» id=«taboola-mid-article-thumbnails-118415718»>In a post on social media Kamath wrote, “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 make MFs less tax-efficient.”
ETFs, on the other hand, avoid this issue through an ‘in-kind’ creation and redemption process. This structure effectively washes away capital gains, providing a significant tax advantage to ETF investors.
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