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Mutual funds are supposed to make investing easier. But in the complicated world of master limited partnerships, easier is relative—and comes at a price.

MLPs are increasingly sought after for their (sometimes extraordinarily) high payouts, about 5.3% these days. The MLP structure—most often used by energy companies—makes investors limited partners, who benefit from its unique tax structure. MLPs don’t pay corporate tax as long as they divvy up the profits among the partners (shareholders). About 80% of that payout is considered a return of capital, on which investors don’t owe any income or capital-gains taxes. That return of capital, though, lowers their cost basis, which can mean a big tax bill down the road.

Complicated? Yes. Confusing? For sure. And where there’s confusion, there’s paperwork. An MLP generates a K-1 form for each state in which it does business, so a single pipeline company that transports oil or natural gas across many states can generate reams of paper, which often comes late, and is a challenge that even the tax pros don’t relish taking on. Multiply that by several holdings, and you’ve got a huge headache.

Funds offer portfolio diversification and tax simplification (you’ll get a single 1099, just as you would from any other fund), but that doesn’t mean it’s simple.

Any fund with more than 25% of its portfolio in MLPs must be structured as a C corporation, which most mutual funds are not. Because of this structure’s accounting requirements, the fund’s net asset value reflects a tax drag, equivalent to the taxes the fund will owe in the future. That’s why most funds will lag the index, which doesn’t have to account for taxes or expenses. Morningstar analyst Abby Woodham notes that because of this, the Alerian MLP ETF has lagged behind its index by five or six percentage points on an annualized basis since its inception in 2010. In addition, the expense ratio, listed at 85 basis points, or 0.85%, is effectively higher because of the lower returns from the tax bite, she says. The ETF yields 5.7%

In general, an MLP fund can pass along tax benefits to its shareholders, which means investors can defer taxes, much as they would if they owned MLPs directly. But gains generated by a fund’s trading will reduce the percentage of the fund’s payout that is treated as a return of capital (and therefore tax-deferred). To overcome this, closed-end funds typically use leverage, which can offset taxes and boost returns, but adds risk.

Another option is an exchange-traded note, whose issuer guarantees the return of an MLP index (less fees). The security is a debt instrument, so investors should be comfortable with the issuer’s creditworthiness. ETNs don’t own underlying MLPs, so they don’t offer the tax advantages that can come with holding units of those partnerships. But you also don’t get that additional four or five percentage points of expenses levied by an ETF or a mutual fund structured as a C corp. The ETN structure is imperfect, as well, says Woodham. But it is less imperfect. And ETNs, she adds, offer better tracking of their indexes and have lower expenses than other types of funds.