A fund’s price is based upon the value of its assets – shares, bonds, property – it owns; the calculation includes:
These charges mean there is a buying and a selling price for every fund: the quoted price depends on the pricing method.
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.
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.
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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Focus on Funds
This article has been updated and was originally published in March 2019.
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