Moreover, mutual fund redemptions can even create capital gains for shareholders who have unrealized losses on the mutual fund investment.
Mutual fund companies pay out 95% of their capital gains and dividends annually to investors, and each investor is also individually taxed at about 15% on the gains and dividends, writes Larry Hungerford for Winston-Salem Journal.
Additionally, ETFs are traded like stocks and can be purchased or sold throughout normal trading hours. Investors can also buy ETFs using margin or take short positions to bet on market weakness. Traditional funds, on the other hand, are only priced after the market closes. [Five Differences Between Index Funds and ETFs]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.