Cookie Policy

We use cookies on our website and have placed these on your computer. By continuing to use our website you consent to this. For more information, including how to change your cookie settings and to disable our non-essential Google Analytics cookies, please refer to our Cookie Policy. If you do not wish to be reminded of this on each visit, please use the close button.

A simple guide to fund pricing

March 2019


Tags: First Time Investors

Mutual 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.

 

Author - Christine Taylor 

 

Read Focus on Funds Magazine 

 

Fund Select List 

As there are thousands of funds available to investors, our Fund Select List is a useful tool to narrow down which might best suit your needs.

The list is compiled by Square Mile, an independent investment research business. It works in partnership with regulated professional financial services firms to develop informed investment recommendations.

 

View Fund Select List 

 

Focus on Funds

This article was featured in the first edition of Focus on Funds magazine.

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 Selftrade.

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. 

Writer: Focus on Funds Tags: First Time Investors

Focus on Funds, brought to you by DIY Investor Magazine, is a publication dedicated to active investment management – unit trusts, OEICs and investment trusts.

You can start investing today through any of our account options:

Dealing Account

Access a wide range of global investments in this flexible, unrestricted account.

Find out more

Stocks and Shares ISA

Take advantage of tax free investing with our Stocks and Shares ISA today.

Self-Invested Personal Pension (SIPP)

From great value to best-in-class, access the SIPP to suit your needs through our extensive network of providers.

I've still got questions!

Our experts are on hand to help at our UK based Customer Experience Centre on 0345 0700 720

Selftrade does not provide investment advice. This article is the authors view and is not the view or opinion of Selftrade and Selftrade accepts no liability for any loss caused as a result of the use of this information. The opinions expressed are those of the author at the time of writing and should not be interpreted as investment advice.

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. We do not provide advice or make recommendations about investments. If you have any doubts about the suitability of an investment, you should seek advice from a suitably qualified professional adviser.

If you have a Stocks and Shares ISA, make sure you get the best value for your investments. We are ranked top for price on large portfolios (Platforum, 2018).

Open an account today and we’ll cover any transfer fees up to £100.*

*T&Cs apply.

Open a Stocks & Shares ISA

Find out more