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[Information]

Introduction to Exchange Traded Funds (ETF)

ETF is a new investment product that lists the index fund’s shares on the stock exchange, so that it can be traded like stocks, and thus provides advantages of both, index funds and stocks.

ETF is an index fund traded like stocks

Although ETF is an index fund, unlike typical index funds, it is listed on the stock exchange and traded like stocks. ETF can be traded freely during the trading hours of the exchange on a real-time basis, by placing orders with a securities company, through the HTS or over the phone, just like stocks.

ETF is an index fund

Although ETF is traded like stocks, it is an index fund tracking a particular index to realize a rate of return tied to that of the benchmark index.

ETF has the advantages of both, stocks and index fund

Traded like stocks on the the downside of an index

exchange, ETF, though it is an index fund, does not have

fund.

In

traditional

index

funds,

there

was

always

a

time

gap between the investment decision making and actual investment. For example, if an investor requests creation of an index fund, it would be created in the morning of

the

following

day

at

the

closing

price

of

the

day

when

the

request

was

made.

The

same happens with redemption. redemption price is decided at the

If an investor requests redemption, since price of the following day, the investor could

the not

redeem exactly at the desired price.

However, in the case of ETFs, there is no time

gap because ETFs are traded time that the investor desires.

on

the

exchange

on

a

real-time

basis

at

a

price

and

Difference between ETFs and traditional mutual funds (“MF”)

¾ Investment Procedure for MFs The investor who wishes to create a fund makes a creation request and delivers cash to the distributor (e.g., securities company or bank), the distributor pays the money into the fund, receives share certificates or shares for the amount paid in and delivers them to the investor.

Investor

Distributor

Fund

Share

Share

Stocks,

Certificates

Certificates

etc.

Cash

Cash

Cash

Capital Market

45

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