Creation Unit
A set of shares or securities that makes up one unit of the 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 Commentary
Creation units can vary in size, with most containing between 25,000 and 600,000 ETF shares each. The utilization 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 ETFs ability to be traded on an exchange give them a significant advantage over comparable investment vehicles such as mutual funds.
Related Links
Introduction To Exchange-Traded Funds
An Inside Look At ETF Construction
See also: Authorized Participant, Exchange-Traded Fund, Mutual Fund, Prospectus, Sponsor, Trust
Also spelled: creation units
creation unit