Exchange-traded funds (ETFs) offer numerous benefits over traditional mutual funds, from trading flexibility to cost efficiency and favorable tax conditions. ACA Group, a provider of scalable compliance, risk and technology solutions, recently explored the potential benefits of an ETF.
Unlike mutual funds, which are priced once at the end of each trading day, ETFs are traded throughout the day on stock exchanges, similar to individual stocks. This provides real-time pricing and the ability to buy or sell shares at current market prices, rather than waiting for the day’s end to determine the net asset value (NAV). This immediacy can be crucial during volatile market conditions, where ETF investors can respond swiftly to market changes.
ETFs generally incur lower operating costs than mutual funds. The absence of expenses related to investor call centers, frequent administrative communications, and extensive record-keeping contribute to significant savings. These reduced overheads mean lower fees for investors, making ETFs an economically attractive option for those looking to minimize investment costs.
From a tax perspective, ETFs are structured to incur fewer capital gains taxes compared to mutual funds. Capital gains taxes on ETFs are triggered only upon the sale of the ETF shares by the investor, unlike mutual funds which distribute these taxes to shareholders continuously. Additionally, ETFs offer a more favorable tax treatment on dividends, with qualified dividends taxed at lower rates provided the shares are held for at least 60 days prior to the dividend payment.
ACA Foreside stands as a pillar of support for firms aiming to launch their own ETFs. In 2023 alone, its experts contributed to the launch of over half of the ETFs in the U.S., supporting more than 275 managers and 1,000+ ETFs globally. ACA’s comprehensive services include compliance support, product distribution, legal underwriting, and more, tailored to a variety of pooled investment vehicles such as mutual funds, alternative products, and private placements.
Beyond the launch phase, ACA Foreside provides ongoing advisory services, managed solutions, and regulatory technologies designed to enhance business growth and ensure compliance with current regulations. This holistic approach not only supports the operational aspects of managing ETFs but also addresses emerging challenges in compliance, ESG standards, investment performance, and cybersecurity.
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