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. Mutual Fund

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

    1. In the context of stocks, an influential investor who creates ...
  6. Prospectus

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