Exchange Traded Funds (ETF) : What it is and how it works ??

ETF is a marketable security. Its holds assets such as stocks, commodities, bonds, etc. Most ETF's in INdia track an index such as nifty, sensex, etc.

ETF is like a mutual fund but unlike mutual fund it trade like shares, and hence its price is determined by demand and supply, rather than its NAV, however usually price is close to its NAV.

How ETFs are created?

ETFs are created by the Authorized Participants (APs) which can be large financial institutions/bank etc which build a portfolio by buying the shares and then it offers those to the fund which in turn issues ETF units, which are further traded in stock market.

Similarly Redemption is also done by APs by redeeming ETF units and taking the shares from the funds.

ETF is gaining market in India, and for retail investors it is a good option who wants to diversify their funds.