Q. You wrote recently that exchange-traded funds tend to trigger lower annual tax bills than index-style mutual funds owning the same stocks. Why is that?

A.: It has to do with the way each type of investment is bought and sold.

When you buy mutual fund shares, the fund company uses your money to buy more shares of the stocks the fund owns. And when you sell your fund shares, those stocks are sold.

Net annual profits from such redemptions are paid out to all the fund’s investors in a year-end “capital gains distribution” that is taxable unless the fund was in an IRA, 401(k) or similar tax-favored account.

ETFs work differently. Institutional investors pool their money to create ETF shares, which are then sold to individual investors just like ordinary stocks. When an investor sells an ETF share, it is bought by another investor.

Because it is not liquidated in a redemption the way a fund share is, there is no net gain to be distributed to any shareholders at year-end. Hence, no tax.

Of course, if you sell an ETF share for more than you paid, you must pay a capital gains tax on the difference. But investors like ETFs because that tax is not owed until the shares are sold.

With mutual funds, tax is owed the year annual distributions are made, even if the investor continues to hold the shares.

¢ Do you have a debt in a margin account at your broker’s? If so, check the interest rate, as you could be paying 9 percent or 10 percent.

Margin rates have soared in the past 18 months as the Federal Reserve has pushed up short-term interest rates. At today’s high levels, it would pay to trim your margin debt.