What happens to an ETF (exchange-traded fund) if its issuer goes bankrupt?
Jan Meriss Alfonso Assistant at Ascent Law LLC Exchange-traded fund It's a common concern that people have about exchange-traded funds (ETFs): what happens to the fund if its issuer goes bankrupt? It's not a stretch to imagine a situation where the fund does well, starts drawing in more and more investors, and then suddenly the company that runs it goes belly up. More than the company going bankrupt, though, what would happen is that the whole fund would be liquidated. Creation and Redemption As shares are bought and sold on exchanges, an ETF uses a process called creation and redemption to match the demand for shares with supply. This is one of the reasons that ETFs have lower fees than mutual funds: by operating this way, they don't need as many employees monitoring trades as a mutual fund does. This might make one think that their investments are less safe This might make one think that their investments are less safe than those in a traditional mutual fund, which hold...