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A simple guide to fund pricing

February 2020

Categories: DIY Magazine

Funds pool the money of lots of investors to buy a portfolio of investments; the price of these assets fluctuates, as does the size of the fund as investors buy and sell shares. Pricing a fund in a way that is fair to investors is complex – here are the basics.


How is the fund price calculated?

A fund’s price is based upon the value of its assets – shares, bonds, property – it owns; the calculation includes:

  • Spreads – the underlying assets may have a bid/offer spread – the difference between the cost of buying a share or selling a share in a company. On widely traded stocks the spread may be very small, and assets like cash have no spread; however, on small, illiquid stocks the spread can be significant.
  • Transaction costs – external costs can include commissions, transfer fees and stamp duty. These costs vary widely, depending upon the type of asset and where they are – eg UK commercial property attracts 5% stamp duty land tax above £150k.
  • Initial charge – applied by the fund manager for setting up the investment, although often fully discounted.

These charges mean there is a buying and a selling price for every fund: the quoted price depends on the pricing method.


Pricing methods – single or dual priced

Both methods seek to treat all investors fairly whether they are buying into or selling out of a fund, or staying invested. In the ordinary course of managing the fund, the costs for buying or selling assets are taken from its capital. When the fund expands or contracts due to investor flows additional transaction costs may arise.


Single priced funds

Most OEICS and some unit trusts operate on a single-price basis; investors can buy or sell shares from the fund manager at the same price.

The price reflects the mid-point of the buying and selling point of the fund’s assets – the ‘net asset value per share’ is the fund’s assets less its liabilities, divided by the number of shares.

Single pricing works well when the number of shares bought or sold is small compared to the overall size of the fund. In the instance of significantly higher volumes, the fund manager can impose a ‘dilution adjustment’ to protect existing investors by transferring costs to investors joining or leaving the fund.


Dual-priced funds

Some funds are dual-priced with a separate buying price (quoted offer price) and selling price (quoted bid price); the difference is known as the spread.

The price at which you buy units, or shares (the offer) reflects the buying price of the fund’s assets plus any transaction costs and initial charge.

The price you sell at (the bid) reflects the selling price of the fund’s assets less any transaction costs associated with selling.

On any given day the offer price is higher than the bid price.

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Use our fund lists to find funds based on insight and ratings from Square Mile, one of the largest and most respected investment research teams in the UK. Our lists are a great way to narrow down your choice before you select which fund best suits your investment goals.

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Author: DIY Investor Magazine Categories: DIY Magazine

Focus on Funds

This article has been updated and was originally published in March 2019.

The views and opinions expressed by the author, Focus on Funds magazine or associated third parties may not necessarily represent views expressed or reflected by EQi.

The content in Focus on Funds magazine is non-partisan and we receive no commissions or incentives from anything featured in the magazine.

The value of investments can fall as well as rise and any income from them is not guaranteed and you may get back less than you invested. Past performance is not a guide to future performance.

Focus on Funds Magazine delivers education and information, it does not offer advice. Copyright© DIY Investor (2016) Ltd, Registered in England and Wales. No. 9978366 Registered office: Mill Barn, Mill Lane, Chiddingstone, Kent TN8 7AA.

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