That's correct! ETFs are also theoretically more tax efficient for the end investor than mutual funds [0]. In practice, this may or may not matter. For examp

That's correct! ETFs are also theoretically more tax efficient for the end investor than mutual funds [0]. In practice, this may or may not matter. For example, Vanguard, being both the largest provider of mutual funds and the second largest provider of ETFs [1] is able to take advantage of both their scale, and a patented legal and accounting structure they use for their mutual funds to make this largely a difference without a distinction for them. Essentially, what they do is join the mutual fund to an ETF that then siphons off the tax liability through the loophole you mentioned [2]. The patent expires in 2023, so you'll probably see other companies doing this too, in 3 or 4 years, unless the IRS decides to do something about it. [0]: https://www.fidelity.com/learning-center/investment-products/etf/etfs-tax-efficiency https://www.fidelity.com/learning-center/investment-products... [1]: https://en.wikipedia.org/wiki/The_Vanguard_Group https://en.wikipedia.org/wiki/The_Vanguard_Group [2]: https://web.archive.org/web/20200713200218/https://www.bloomberg.com/graphics/2019-vanguard-mutual-fund-tax-dodge/ https://web.archive.org/web/20200713200218/https://www.bloom...