Creation Unit


DEFINITION of 'Creation Unit'

A set of shares or securities that makes up one unit of a fund held by the trust that underlies an exchange-traded fund (ETF). One creation unit is the denomination of underlying assets that can be redeemed for a certain number of ETF shares.

BREAKING DOWN 'Creation Unit'

Creation units can vary in size; with most containing between 25,000 and 600,000 ETF shares each. The use of creation units in the construction of ETF shares is critical because they allow for the representation of the underlying assets - the ETF shares, which represent a tiny chunk of a creation share - to be traded intraday. The ability to trade ETFs on an exchange gives them a significant advantage over comparable investment vehicles, such as mutual funds.

  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  3. Authorized Participant

    An entity chosen by an exchange-traded fund's (ETF) sponsor to ...
  4. Prospectus

    A formal legal document, which is required by and filed with ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Sponsor

    1. In the context of stocks, an influential investor who creates ...
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  1. What is the difference between an ETF's net asset value (NAV) and its market price?

    An exchange-traded fund's market price is the price at which shares in the ETF can be bought or sold on the exchanges during ... Read Full Answer >>
  2. How does arbitrage affect the price of exchange traded funds (ETFs)?

    Arbitrage may be used to bring the market value of an exchange-traded fund (ETF) back into line with the net asset value ... Read Full Answer >>
  3. How can I check to see if an ETF’s price reflects its asset value?

    An investor can check the net asset value (NAV) for an exchange-traded fund (ETF) on the website for the ETF after the market ... Read Full Answer >>
  4. Can you short sell ETFs?

    ETFs (an acronym for exchange-traded funds) are treated like stock on exchanges; as such, they are also allowed to be sold ... Read Full Answer >>
  5. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
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