How does the in-kind creation / redemption mechanism work in ETFs?
ETFs can either be purchased on the Exchange or directly with the Fund. The Fund creates / redeems units only in predefined lot sizes in exchange for a predefined underlying portfolio basket. Once the underlying portfolio basket is deposited with the Fund together with a cash component, the investor is allotted the units. This is in-kind creation / redemption of units, unique to ETFs. Alternatively, investors can follow the “Cash Subscription” route in which they can pay cash directly to the Fund for purchasing the underlying portfolio.
