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Creation Unit

The term Creation Unit is used to define the set of securities (or shares) that make up one unit of a fund that is the basis of an exchange-traded fund (ETF). This Creation Unit is held by the specified trust. One Creation Unit is the denomination of fundamental assets that can be claimed for a number of ETF shares; most containing between twenty-five thousand and six-hundred thousand exchange-traded fund shares a piece. Having these units are absolutely necessary for the establishment of ETF’s. Since they allow representation for the assets to be traded, Creation Units have a great advantage over other types of investment vehicles including mutual funds. One such advantage is the money that can be saved from cost expenses, fees, and taxes. When investors decide to invest in mutual funds, they end up sending money to the fund company itself. The fund company then uses that cash to obtain securities and issues more shares of the fund. If an investor wishes to redeem their shares, they are then sent back to the fund company for a certain fee. Exchange Traded Fund Creation Units eliminate the need for cash by investors and eradicate any associated transaction fees.

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