Income Equalization Definition

Learn the definition of income equalization and other ETF terminology from the etf.com glossary.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Income Equalization

Income equalization is a mechanism used by some ETFs to ensure that the per-share income distribution remains consistent, regardless of the number of ETF shares outstanding. This is achieved by adjusting the income distribution based on the number of shares created or redeemed during the period. Income equalization is particularly relevant for ETFs that invest in income-generating assets, such as bonds or high-yield corporate debt. Without income equalization, the per-share income distribution would fluctuate based on the number of outstanding shares, which could unfairly disadvantage investors who held the ETF for a shorter period. By implementing income equalization, ETF managers ensure that all investors receive a fair and consistent share of the ETF's income, regardless of their entry or exit points. This contributes to the transparency and fairness of the ETF structure.

Related Terms

Growth Investing, High-Yield Bond, Transparency

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.