How do index ETFs handle dividends?

Index ETFs handle dividends in different ways. IShares reinvest dividends in the fund when they are paid. Most funds, such as SPY and QQQ, hold dividends in cash-equivalent instruments until a pre-determined distribution, typically at the end of each month or quarter.

HOLDRs distribute cash dividends immediately. In any case, whether the fund distributes or reinvests the dividends, this is still a taxable event for the shareholder. More.

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