Investment product relies on capital appreciation and distribution of income as two major criteria of classification. Most investors purchase these products with a hope that they will increase in price over time so they can sell them at a profit.
However, other investment products come with additional revenue, such as bonds. This kind of product offers traders the opportunity of selling them when they have increased in value and simultaneously paying off a fixed income, referred to as capital distribution. There are many investment products that traders can put their money on.
Exchange Traded Fund
This is a simple and affordable way to get investment revenue on an underlying asset, just like shares or bonds. Just like any other asset of trade, ETFs can be time consuming and risky. ETF is a marketable security, which traces a bond, an index or a commodity. It is also affected by the market demand and supply forces, and thus their value changes. They are better than mutual funds in terms of liquidity and also attract a lower fee, thus making them a favourite of small-scale investors.
Just like bonds, ETF holders earn part of the profit, or a portion of the dividends accrued. In addition to that, they may also receive a residue value when liquidation is done on ETF. This investment product can also be bought, transferred or sold in the stock exchange market.
The mechanism referred to as creation and redemption regulate the supply of ETFs. This process is done by professional investors called authorized participants. These investors are generally banks and other investment companies with high buying ability.
When creating an ETF, an AP gathers the desired portfolio of investment product and hands over the basket in exchange for the ETF created. Likewise, when redeeming the ETFs, the APs hand over the shares and get back their basket of investment products.