According to the start of the Aritrage mechanism of the Wikipedia page for Exchange-traded fundI am not sure I understand or agree with the bolded part. TIPD currently has $2 million under management. If I bring another million, are you saying they don't need to actually buy anymore TIPS to sell me $1M worth of their shares? That's terrible! What if another investor after me brings $10MM?
ETFs do not purchase or sell assets as a result of shares of the ETF being traded. ETFs create and redeem shares in exchange for a basket of securities that resemble the holdings of the ETF. With ETFs like these, the basket of securities will likely be very close to the current holdings of the fund. There should be little, if any, dilution of share value.
There will be dilution of account balance by not reinvesting the part of the distributions of ETF that are from the inflation adjustment to TIPS that continue to be held by the ETF.
TIPD would not accept a million dollar of cash to create a million dollar worth of shares and use the million dollars to buy TIPS. An authorized participant would bring a million dollars worth of TIPS, with the value of each issue of TIPS being in proportion to what the ETF already holds. The authorized participant will also pay some cash to TIPD so that TIPD can maintain the portion of its holdings in cash without making any portfolio transactions.ETF shares are created and redeemed when large broker-dealers called authorized participants (APs) act as market makers and purchase and redeem ETF shares directly from the ETF issuer in large blocks, generally 50,000 shares, called creation units. Purchases and redemptions of the creation units are generally in kind, with the AP contributing or receiving securities of the same type and proportion held by the ETF; the lists of ETF holdings are published online.
This is a wonderful aspect of ETFs compared to open-end mutual funds that create and redeem shares for cash.
Statistics: Posted by FactualFran — Wed Nov 12, 2025 11:09 pm — Replies 27 — Views 2399