The increase in capital gains tax for wealthy investors proposed by the Biden administration could accelerate the shift away from mutual funds. This according to a recent article in Financial Times.

Since Fidelity popularized mutual funds in the 1980s, the article reports, “they have been a staple of investment portfolios, with more than 100 million Americans owning mutual funds in their retirement or brokerage accounts.” And while most of those investors hold funds in tax-free retirement plans, for wealthier individuals who have “maxed out their tax-free savings” the proposed tax increase would lead to a “chunky capital gains bill.”

The article cites Morningstar data showing that “several growth funds paid out double-digit percentages of their net asset values last year following the bull run in technology stocks.” By contrast, it notes that investors rarely see such taxable distributions from ETFs due to their structure—fluctuations in demand are met by creating and redeeming fund shares, so managers don’t usually have to sell stock. While some ETFs do have taxable-distribution risk (those that invest in derivatives, for example), the broader move out of mutual funds and into ETFs is likely to continue, the article argues.

“Taxable distributions from mutual funds this year could be significant, just when the taxes on them seem likely to be heading higher,” the article concludes, adding, “Investors who have not yet reconsidered the use of mutual funds in their portfolios may want to do so, and soon.”

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