Let's take a closer look at the net asset value or NAV of an equity ETF. The NAV is a critical metric for investors as it represents the total value of all assets held by the ETF at a given point in time. For equity ETFs, the NAV is made up of two primary parts.

The first is the value of shareholdings, which represents the total market value of the ETF's underlying portfolio of stocks. This is calculated based on the current market prices of the shares and forms the largest component of the NAV.

The second part is the cash components, which consists of various income and expense elements related to the fund's operations. Received dividends contribute to the cash components as companies in the ETF's portfolio distribute dividends. These dividends are collected by the fund and via the cash components are often periodically distributed to ETF investors. Typically, on a quarterly basis.

Securities lending revenues also adds to the cash components. ETFs may lend out shares from their portfolio to other market participants, such as short sellers in exchange for a fee. This revenue offsets some of the fund's expenses and increases the cash components.

Interest income is generated from the portion of the ETFs, assets held in cash or short-term investments further contributing to the cash components.

Finally, ongoing charges figure or OCF reduces the cash components. This OCF includes the management fee charged by the ETF provider and other operational expenses like legal, administrative, and audit costs, making it a comprehensive measure of the fund's running costs. The cash component is calculated and published daily by the ETF provider, and it plays a critical role in the in kind, creation and redemption process. For example, during the in kind creation process, authorized participants deliver a basket of securities to the ETF manager that matches the fund's underlying holdings. Along with these securities, they also deliver the cash components to ensure that the total value of assets, both securities and cash, precisely matches the ETF's NAV. This ensures accuracy in aligning the ETF's share value with its underlying portfolio.