Redemption Mechanism

A redemption mechanism refers to the process by which investors can sell or redeem their shares in a financial product, such as a mutual fund or exchange-traded fund (ETF), to receive cash or another form of compensation. This process ensures liquidity for investors, allowing them to exit their investment at the net asset value (NAV) or market price, depending on the type of fund or security. Some redemption mechanisms are designed to maintain stability, particularly for open-ended funds, by offering regular redemption opportunities.

Example

An investor in a mutual fund can redeem their shares at the current NAV by submitting a redemption request, receiving the cash equivalent of their holdings.