CMFAS M8 Exchange-Traded Funds (ETFs) question: sensible practical check for a retail

CMFAS M8Exchange-Traded Funds (ETFs)

Before dealing in an ETF, a sensible practical check for a retail investor is to:

A check whether the ETF trades at a premium or discount to its indicative NAV
B apply to become an authorised participant so it can deal at NAV
C ask the fund manager to create new units for it at the closing NAV
D ignore the bid-offer spread, since trades on the exchange carry no costs at all

Show the answer and explanation

Answer: A. check whether the ETF trades at a premium or discount to its indicative NAV

A retail investor should trade via a broker in the secondary market, be aware of the bid-offer spread and brokerage, and check whether the ETF is at a premium or discount to indicative NAV before dealing.

Common mistake

Ignoring premium/discount; buying at a large premium erodes value versus the underlying.

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CMFAS M8 Exchange-Traded Funds (ETFs) question: sensible practical check for a retail

Answer: A. check whether the ETF trades at a premium or discount to its indicative NAV

Common mistake

Related CMFAS M8 questions

CMFAS M8 Exchange-Traded Funds (ETFs) question: sensible practical check for a retail

Answer: A. check whether the ETF trades at a premium or discount to its indicative NAV

Common mistake

Related CMFAS M8 questions