What is an ETF?
A fund that trades on the exchange is regulated in Turkey under the name borsa yatırım fonu (BYF); its international equivalent is the ETF. Its units are bought and sold on Borsa İstanbul during the session, just like a share. Every BYF is established to track an index approved by the Capital Markets Board (SPK); its core aim is to reflect that index's performance.
The core difference between a BYF and a TEFAS fund: price
A conventional mutual fund has a single price: the unit share value. This value is the price that forms the basis for buying and selling, and as a rule it is calculated and announced daily. Moreover, in funds other than money market funds and short-term debt instrument funds, orders are executed at the price found in the first calculation following the placing of the order. In other words, the investor does not know the execution price when placing the order. Details on cut-off times and price announcement are on the fund trading hours page.
A BYF, by contrast, has two separate values per unit:
- Unit share value: found by dividing the fund's total value by the number of units in circulation.
- Trading price: the price formed in the trades of the units on Borsa İstanbul.
The trading price forms continuously throughout the session, and the investor places an order at the price they see. That is where the difference lies: one is a value calculated once a day, the other is a live market price.
How is an exchange-traded fund bought?
Because BYF units trade on the exchange, the process resembles a share transaction:
- An investment account at an investment firm that is an exchange member is required; orders are transmitted to the exchange through that firm.
- The order is entered using the fund's trading code. BYF units trade in the Structured Products and Fund Market within the Equity Market.
- Transactions take place within the trading hours of the relevant market; the market applies the continuous trading method.
- The lot size is one unit and fractional orders cannot be submitted.
- Settlement is completed on the second business day following the trade date (T+2).
- Units are held in dematerialized form and tracked at the Central Registry Agency on a beneficial-owner basis.
Which firm to work with, which fund to examine, and whether to transact at all are the investor's own decisions; this page only explains how the mechanism works. Funds trading on Borsa İstanbul can be viewed in the exchange-traded funds list.
How units are created: the primary and secondary markets
A BYF has two market layers.
The secondary market is the layer the investor sees: units being bought and sold on the exchange.
The primary market sits in the background, and this is where the authorized participant comes in. This is a brokerage firm that has signed a contract with the founder and is licensed by the SPK.
- Creation: the authorized participant assembles the assets or cash so as to reflect the composition of the fund portfolio and delivers them to the portfolio custodian; in return, new units are created.
- Redemption: it returns units to the portfolio custodian; in return, it receives the assets or cash corresponding to those units.
These transactions can only be done in the size of the minimum transaction unit or multiples of it. The founder sets the minimum transaction unit and discloses it in the information documents. As a result, the number of units in circulation is not fixed; new units can be created or redeemed according to demand.
Why can the trading price diverge from the unit share value?
The trading price forms according to supply and demand on the exchange, whereas the unit share value is calculated from the value of the portfolio. No rule makes these two numbers equal. For this reason a BYF can trade above (at a premium to) or below (at a discount to) its unit share value.
What limits the gap is the creation and redemption mechanism: when the gap widens, buying the cheap side and selling the expensive side becomes a profit opportunity for authorized participants, and those transactions create pressure in the direction of narrowing the gap. However, this is not automatic or guaranteed. Transaction costs, the size of the minimum transaction unit, the liquidity of the assets in the portfolio and unusual market conditions can cause the gap to persist.
So that the gap can be monitored, the founder announces the indicative fund total value and unit share value during session hours, updating them on its own website and on the screens of at least two data vendors.
How is index tracking measured?
The regulation defines two measures:
- Tracking difference: the difference between the annual return of the fund portfolio and the annual return of the index.
- Tracking error: the variability of the difference between the fund's return and the index's return.
The founder announces on KAP, on the first business day of the following month, the tracking difference and tracking error calculated for the last one-year period as of the end of each month; if the tracking difference increases significantly, it also discloses the reasons.
A BYF may track its index by continuously holding at least 80% of its total value in assets within the index it tracks. The portfolio can be built by full replication of all the assets in the index, or by sampling a selected portion of them. Sampling and the fund's expenses (total expense ratio) are among the main sources of tracking difference.
Other structural points
- A BYF cannot be established as an umbrella fund. Its founder is a portfolio management company; the fund has no legal personality.
- Units have no nominal value; the unit share value of a BYF to be traded on the exchange is set to be at least 1 TL.
- Distribution of dividends by the fund is possible.
- Funds whose portfolios consist continuously of non-interest-based instruments may include the phrase "katılım fonu" in their name (participation fund).
- BYF gains are subject to the withholding tax regime under provisional article 67 of the Income Tax Law; rates vary by fund type and are updated by presidential decree, so the current rate should be confirmed.
Frequently asked questions
what is a fund that trades on the exchange
A fund that trades on the exchange is called a borsa yatırım fonu (BYF) in Turkey; its international equivalent is the ETF. Its units are bought and sold on Borsa İstanbul during the session like a share. Every BYF is established to track an index approved by the SPK, and its core strategy is to reflect that index's performance.
how do you buy an exchange-traded fund
Because BYF units trade on the exchange, the process resembles a share transaction: an investment account is opened at an investment firm that is an exchange member, and the order is sent to the exchange through that firm using the fund's trading code. Transactions occur within the trading hours of the relevant market, the lot size is one unit, fractional orders cannot be submitted, and settlement completes at T+2. Choosing a firm and a fund, and whether to transact at all, are the investor's own decisions.
what is the difference between a BYF and a mutual fund
The core difference is how the price forms. A conventional mutual fund has one price that forms the basis for buying and selling: the unit share value, which as a rule is calculated and announced daily, and in most funds an order is executed at the price found in the first calculation following the order. A BYF has two values: the unit share value and the trading price that forms continuously on the exchange during the session.
are ETF and BYF the same thing
Yes, they describe the same product family. ETF (exchange traded fund) is the international term; in Turkey the regulatory equivalent is the borsa yatırım fonu, governed by the SPK's communiqué III-52.2.
when can an exchange-traded fund be bought and sold
BYF units trade in the Structured Products and Fund Market within the Equity Market, and transactions take place within the trading hours of the relevant market; the market applies the continuous trading method, so the price forms continuously throughout the session. For current trading hours and the cut-off logic that applies to conventional funds, see the /fon-islem-saatleri page.
why can a BYF price differ from its unit share value
The trading price forms according to supply and demand on the exchange, while the unit share value is calculated from the portfolio's value; no rule equalizes the two. So a BYF can trade at a premium or a discount. The creation and redemption mechanism creates pressure toward narrowing the gap, but this is not automatic or guaranteed: transaction costs, the size of the minimum transaction unit, the liquidity of portfolio assets, and unusual market conditions can cause the gap to persist.
does an exchange-traded fund pay dividends
The regulation permits it: distribution of dividends by a borsa yatırım fonu is possible. Whether it does so, and on what basis, is set out in the fund's information documents.
In short
A BYF is a fund that tracks an index and whose units trade on the exchange like a share. Its main difference from a conventional fund is how the price forms: instead of a single value calculated once a day, it has a market price that forms throughout the session. That trading price can diverge from the unit share value; the creation and redemption mechanism in the background limits the gap but does not eliminate it.