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What is an Exchange Traded Fund (ETF)?
An Exchange Traded Fund is a new investment product that EGX has made available for investors. It represents a portfolio of securities in the form of equities or fixed income or specific sectors to track the performance of an index. It offers investors an innovative way to get effective exposure to specific instruments, markets or sectors.
What is an index tracking an ETF?
An index tracking an ETF is an open-end fund that is traded on EGX and its principal objective is to track, replicate or correspond to an index on equities, fixed income and even commodities. For example, an ETF tracking EGX 30 Index means that the ETF's objective is to track or replicate the performance of EGX 30 Index.
What is the Indicative Net Asset Value (iNAV) of an ETF?
The Indicative Net Asset Value (iNAV) of the ETF is the net asset value of the Exchange traded fund throughout the trading session calculated according to the daily intraday closing values of the portfolio of the Fund's constituents divided by the number of certificates. This is calculated and updated every 15 seconds by the Fund management services company.
How can I buy or sell ETFs?
Like ordinary shares, investors can easily buy or sell ETFs through their brokers anytime during normal trading hours of EGX in the same way they buy or sell shares.
What transaction fees do I need to pay to buy or sell ETFs?
Like buying and selling shares, investors pay brokerage commission, trading and clearing fees.
How is the market price of an ETF determined?
The market price of an ETF is usually very close to the market value of the underlying securities held in the portfolio, and any net income not distributed.
What is the minimum investment amount?
ETFs are traded in the same size as shares so the minimum lot size is one unit.
How long do I need to hold an ETF before I can sell it?
Like investing in shares, you can trade ETFs actively to take short term profit opportunities, or you can hold ETFs for long term investment.
Do ETFs come with a prospectus?
Yes, ETFs come with a prospectus and it is important for investors to carefully read the prospectus of an ETF as they read the prospectus of a mutual fund. The prospectus includes important disclosure information such as fund management, fund objectives, fund fees, fund risks etc.
Do ETFs pay dividends?
Like shares, most ETFs pay dividends to their holders either quarterly or annually, but some ETFs may pay dividends at other times determined by the ETF fund manager. Investors are advised to look at the distribution policy as specified in the prospectus of the particular ETF.
Can ETFs be purchased on margin?
ETFs can be purchased on margin after comlpiance with the specialized activities criteria as well as EGX approval, they are generally subject to the same terms as shares.
Can ETF units be created and redeemed?
Yes, ETF units can be created and redeemed through the unique 'in-kind' creation and redemption process, which is typically done between market makers and fund managers.
How are transactions in ETFs settled?
ETFs are settled in the same way as shares i.e. at T+2.
What is the Net Asset Value (NAV) of an ETF?
The Net Asset Value or NAV is the fund's assets minus its liabilities divided by the number of outstanding shares. NAVs are calculated at the end of each trading day.
As a shareholder, if the NAV increases, it means the value of your holdings increases and vice versa.
What is the relationship between the NAV and the price of the ETF?
Each ETF has a NAV that is calculated with reference to the market value of the securities held by it. However, the trading price of an ETF on EGX, like that of shares, is determined by the supply and demand of the market. The trading price of an ETF may not be equal to its NAV, and this disparity may give rise to arbitrage opportunities.

An ETF is an open-ended investment fund that permits “in-kind” creation and redemption; arbitrageurs can take advantage of any discrepancies between the price of an ETF and the NAV of its underlying basket of stocks.

When the traded price of an ETF is higher than its NAV, an arbitrageur will sell the ETF units and buy the underlying portfolio of stocks (to create new ETF units to meet his sale delivery). And when the traded price of an ETF is lower than its NAV, the arbitrageur will sell the underlying portfolio of stocks and buy ETF units (to redeem for the underlying portfolio of stocks to meet his sale delivery). Such arbitrage activities help to ensure that the traded price of an ETF will usually be very close to its NAV.
 
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