Structural Ramifications and Taxation
KEY POINT:
The creation and redemption transactions that take place within the ETF structure are not considered to be trades and therefore do not generate taxable gains and losses within the ETF portfolio.
It is important to understand that different types of ETFs structures can affect their tax efficiency. As the ETF structure has evolved and the funds have begun providing exposure to more esoteric underlying assets, they have evolved into utilizing a cash creation and redemption feature. This cash creation/redemption feature is usually only used when the underlying is regulated and/or difficult to trade. In the standard in-kind creation and redemption process, the transactions by the fund are not considered ...
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