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I own some bad index funds. I would like to decompose them into their stocks, and just hold these (maybe doing further alchemy and replacing some of them with other index funds). Is this possible without selling the funds, and incurring CPT? Does the answer depend on the type of funds Im holding? Thanks,

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    If the funds are doing poorly, what is the tax impact of selling your shares? Jun 26, 2023 at 12:14
  • not so poorly that they lose money in nominal terms. Jun 26, 2023 at 20:11

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No. You can't exchange mutual funds or ETFs directly for the underlying holdings without selling the fund first and then buying the stocks directly.

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    ETF shares can be created and redeemed through "creation units", where shares of the underlying stocks are exchanged for shares of the ETF, and vice versa. I think individuals can do this if they have enough money, but from my recollection, at least 50,000 ETF shares is the floor for a sponsor to make a creation unit or to redeem ETF shares for the underlying securities.
    – Stan H
    Jun 26, 2023 at 4:03
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    @StanH I think the requirements to become an Authorized Participant are quite high.
    – glglgl
    Jun 26, 2023 at 8:15
  • @glglgl yeah I wasn't sure if only the APs qualified for the tax-free exchanges. I've worked with a couple of people who had creation units made for them, but they didn't do it for tax purposes.
    – Stan H
    Jun 26, 2023 at 14:24

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