iPath ETN, created and marketed by Barclays Bank, PLC, is very similar to ETF, or Exchange-Traded Funds (also pioneered by Barclays), which can be traded like a stock throughout the day, but also mimics the returns of a benchmark index. However, ETN comes with an important tax advantage over ETFs and mutual funds -- it is not required to distribute dividends and capital gains every year, making it possible for investors to avoid paying tax on such distributions, and having more money at work until the final redemption.

Now here is the caveat: in order to achieve these tax benefits, ETNs are structured as unsecured, unsubordinated debt securities issued by Barclays Bank PLC, with returns linked to a pre-defined benchmark index, minus fees. In other words, the value ETNs are secured by the credibility of Barclays instead of a pool of underlying investments.

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This entry was posted by David Choi, on Tuesday, November 13, 2007. You can leave your response.