Understanding the types of income from ETFs

Claymore Investments, Inc. 14 May, 2010 | 2:51AM

Investors can choose ETFs with distributions made up of dividends, interest income, return of capital, or a combination of these. It's important to know how an ETF's distribution is treated for tax purposes so that you can plan to minimize your tax liability and maximize your after-tax return.

ETFs are generally structured to flow any income or distributions earned on the underlying portfolio, less their expense ratio, to the shareholders of the ETF. The tax character of the underlying portfolio income will generally stay the same for the ETF's income. For example, if you hold an ETF that tracks a basket of bonds, the ETF will distribute interest income just like the bonds themselves. If you hold an ETF that tracks a basket of Canadian dividend-paying stocks, the ETF will distribute dividend income.

In some Claymore ETFs, we have structured our ETFs to provide more tax-efficient income than the underlying securities themselves. You can learn more about these by searching on our website for more tax-efficient products.

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Claymore Investments, Inc.

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