The type of investment you hold can have a big impact on your tax bill — and taxes can have an even bigger impact on total return.

What are some key considerations when looking at mutual funds, Exchange-Traded Funds (ETFs) and Separately Managed Accounts (SMAs) for your portfolio? Because what you own can be just as important as how you own it.

Mutual Funds vs. ETFs vs. SMAs

Although there are benefits to each investment vehicle, there are some distinct differences between mutual funds, ETFs and SMAs. Here are some important distinctions.

Scroll for more detail
Mutual Fund ETFs SMAs
Can you make it your own?
No No Yes – exclusions and adjustments allowed. Can customize to individual investor preferences.
Where can the money come from?
Cash Cash Cash or in-kind
How often are the holdings valued?
Daily, at end of day Constant Daily or monthly
When can I sell my investment?
Daily, at end of day Instant – trades on an exchange
Tax Treatment
How are taxes treated for investors?
Limited Tax Efficiency
Trading to rebalance or to meet redemptions may cause capital gains for investors; gains may be paid once per year
Tax Efficient
Structure enables mitigation of capital gain realization caused by trading, rebalancing and redemptions
Tax Managed
Investors own individual securities and can use techniques such as tax-loss harvesting to minimize capital gains
Accounts to Consider
Where should you hold this investment?
Tax-deferred and tax-exempt accounts Tax-deferred, tax-exempt or taxable accounts Taxable accounts

Related Articles