Creation Unit

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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.

INVESTOPEDIA EXPLAINS'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.

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RELATED FAQS
  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. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
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    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

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