Unlike a mutual fund, an ETF's outstanding unit count is not fixed — it expands and contracts every trading day based on demand and the relationship between the ETF's market price and its underlying value. This elastic supply is what keeps ETF prices honest.
Explore India's ETF Directory →A traditional mutual fund issues and redeems units directly with investors at the end-of-day NAV. An ETF is different: its units trade on a stock exchange all day long, just like a share. But there is a powerful backstage mechanism that ensures the ETF's market price cannot stray far from the value of what it holds.
That mechanism is the creation and redemption process, operated exclusively by special institutional players called Authorized Participants (APs). When an ETF is in high demand and its market price exceeds its NAV, APs create new units to satisfy that demand and capture a profit. When the ETF is out of favour and its market price drops below NAV, APs redeem units, shrinking the supply and pulling the price back up.
Major AP names in India (examples): ICICI Securities, HDFC Securities, Kotak Securities, SBI Capital Markets, JM Financial, Nuvama, Motilal Oswal, IIFL, Jane Street (through its registered entities), Goldman Sachs (India) Securities, Morgan Stanley India and Nomura India are names often seen in ETF market-making/AP ecosystems. The exact AP panel is scheme-specific and can change — always verify the latest list in the ETF's SID/KIM and AMC website.
About turnover data: Exchange-wise ETF turnover is public (NSE/BSE), but AP-wise annual ETF turnover is generally not disclosed in a consolidated public format by scheme. So precise yearly turnover by each AP is usually not reliably available.
Key insight: The number of ETF units outstanding is not fixed. It can grow from 1 crore to 10 crore units or shrink from 10 crore to 2 crore units over time — all driven by this creation-redemption cycle. This is entirely different from a company's shares, where the share count is relatively stable.
Creation happens when the ETF's market price on the exchange is higher than its NAV — it is trading at a premium. An AP can exploit this by delivering the underlying basket of securities to the AMC and receiving new ETF units worth the same amount. Because those units can be sold on the exchange at the (higher) market price, the AP pockets the difference.
Net result: More units exist, the ETF's market price comes down toward NAV, and the premium disappears. The ETF's AUM (Assets Under Management) has increased — the fund now holds more stocks.
Redemption is the mirror image. It occurs when the ETF's market price is lower than its NAV — it is trading at a discount. An AP can buy cheap ETF units on the exchange and exchange them with the AMC for the more valuable underlying basket of stocks (or cash).
Net result: Fewer units exist, the ETF's market price rises back toward NAV, and the discount disappears. The ETF's AUM has decreased.
For equity ETFs, creation is typically "in-kind" — the AP delivers the actual stocks. For Gold ETFs in India, the process is slightly different because SEBI mandates that gold ETFs hold 99.5%+ purity physical gold.
An AP submits cash equivalent to the NAV to the AMC. The AMC uses this cash to buy physical gold from LBMA-approved refiners or RBI-approved domestic refiners and stores it in designated vaults (BRINKS, Sequel Logistics, etc.). New units are credited to the AP's account in exchange. Physical gold never leaves the vault — the AP just receives electronic units representing ownership of that gold.
For Debt ETFs (G-Sec ETFs, SDL ETFs), the AP delivers government bonds or state development loans to the AMC in exchange for units — similar to equity in-kind creation but using fixed income instruments.
Each morning before trading begins, the AMC publishes a Portfolio Deposit (PD) file on NSE. This file specifies exactly which securities and in what quantities an AP must deliver to create one creation unit. For a Nifty 50 ETF, this file lists all 50 stocks with the exact number of shares required for, say, a 50,000-unit creation block.
The PD file changes daily as index weights shift and as the fund's outstanding units change. APs download this file each morning and use it to assemble creation baskets with precision. If an AP delivers even one share too few or too many, the creation is rejected.
Why does this matter for investors? The PD file is publicly available on NSE's website. By reading it, you can see exactly what's inside an ETF on any given day — useful for verifying that the ETF is actually holding what it claims to hold and not deviating from the index.
| ETF Category | Typical Creation Unit | Approx. Value | Creation Mode |
|---|---|---|---|
| Nifty 50 ETFs (NIFTYBEES) | 1,00,000 units | ~₹2.5 Cr | In-kind (stocks) |
| Nifty Bank ETFs (BANKBEES) | 50,000 units | ~₹2 Cr | In-kind (stocks) |
| Gold ETFs (GOLDBEES) | 1,000 units | ~₹65 L | Cash (gold purchase) |
| Govt Securities ETFs | 10,000 units | ~₹1 Cr | In-kind (bonds) |
| Sectoral ETFs | 10,000–50,000 units | ₹50L–₹2.5 Cr | In-kind (stocks) |
These large minimum sizes mean that direct creation and redemption is only practical for large institutions, hedge funds, and registered APs — not retail investors. Retail investors simply buy and sell existing units on the secondary market.