¾ Investment Procedure for ETF
Unlike MFs, created and
ETFs have primary markets and secondary terminated by Authorized Participants in the
traded like stocks secondary market.
general investors and Authorized Participants in the this process, Authorized Participants conduct arbitrage
and the market price of ETF shares. ETFs the secondary market at a price
As a result, general investors can invest similar to that in the primary market.
Investors creating/terming the ETF
Exchange cash for ETF
¾ Difference between ETFs and MFs
Form of Deposit Additional Creation Listing Redemption Trade on Exchange Management cost
Liquidity On-hour trade
securities possible presumed Redeemable in securities possible Low (no inter-firm securities transaction) Transparent (public notice of PDF and anticipated NAV) high Investors may trade at a market price on a real-time basis
Investor can decide the price and time of redemption
Short selling or selling through lending is possible; as a result, individual investors can manage risk through lending.
MF Open ended type Cash Possible Not necessary Redeemable in cash
Not possible High (cost transaction) N/A
Impossible Presumed Impossible Possible inter-firm
Investors do not know the precise price of creation or redemption until the net asset value, based on the closing price of the securities in the fund, is made available Investor does not know the precise redemption price because it is calculated based on the net asset value of fund by the closing price as of the business day immediately following the date of request for redemption Short selling or selling through lending is not possible; as a result, MF cannot be used as a means of managing the risk of individual investors