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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Scheme Related Information

What is the key feature of an Exchange Traded Fund (ETF) that distinguishes it from a regular open-ended index fund?

An ETF's distinguishing feature is that its units trade on a stock exchange at market prices, while creation and redemption in large blocks is carried out with the AMC by authorised participants. Most ETFs passively track an index, unlike actively managed schemes.

  1. AUnits are traded on a stock exchange at market prices, with creation and redemption in large lots by authorised participantsCorrect
  2. BIt cannot track any index
  3. CIt is always actively managed to beat the benchmark
  4. DUnits can only be purchased directly from the AMC at NAV by retail investors in any amount

Explanation

ETFs list on stock exchanges, so retail investors buy and sell units at market prices through a demat account. Large-lot creation and redemption is done in kind or cash by authorised participants and market makers. Most ETFs are passive and track an index.

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