In-Kind Redemption
The process by which an authorized participant returns ETF shares to the issuer and receives a basket of the underlying securities in return. Because the issuer hands out stock instead of selling it on the open market, no capital gain is realized at the fund level. This is the load-bearing mechanic behind ETF tax efficiency: appreciated lots can be flushed out the back door during redemptions without triggering distributions to remaining shareholders. Mutual funds cannot do this because their structure forces cash settlement on redemption.
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Related terms
Active Management · Active Share · AI Revenue · Anchoring Bias · Cost of Capital · Creation Unit
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