A mutual fund is a collection of stocks, bonds and other investments, pooled into one account. That shares the risk and smoothes the fluctuations in value of the individual investments. A fund's price or value is established by the worth of each share of the total assets, called a net asset value. Funds have to be registered with the Securities and Exchange Commission, and they must report this NAV each day.
The SEC requires each fund to calculate its net asset value and report it to the National Association of Securities Dealers by 5 p.m. Eastern time each trading day. To calculate that value, the fund determines the closing or last sale price of all securities and the worth of any other investments in its portfolio. Then it deducts any fees or expenses, and it divides that total by the number of shares in the fund. NAV calculations usually begin after the stock exchanges close, which normally is 4 p.m. Eastern time. Price updates are reported as soon as those calculations are complete.
The National Association of Securities Dealers assimilates the NAV of each registered fund and compiles the results into a basic list that it distributes to news services and other security reporting agencies. That NAV is what a buyer will pay for a share in the fund the next day, or what a seller who redeems a share will receive, less any commissions or other brokerage fees.
The National Association of Securities Dealers collects and distributes mutual fund information through its Mutual Fund Quotations Service. NASDAQ, the automated service created by the association to handle trading in stocks not listed on a formal exchange, charges funds fees for these services. Participation in the NASDAQ service is voluntary, but virtually all funds take part to get their share prices reported publicly.
A public offering price is the NAV plus any commissions or sales fees charged by the fund when investors buy a share. That also changes daily, as the NAV fluctuates. Most funds listed in newspaper and other compilations are "open end," allowing any number of investors to buy shares. The NAV will vary as the number of shares held in the fund changes.
Some funds are "closed end," with a fixed number of shares allowed. Closed-end funds can be traded on a public exchange, just like stocks, in which case the updated price will be the value when exchange trading ends for the day. That price might be above or below the NAV. Closed-end funds are not required to report their NAVs to the National Association of Securities Dealers.
- Securities and Exchange Commission: Net Asset Value
- NASDAQTrader.com: Mutual Fund Quotation Service
- Investment Company Institute: Frequently Asked Questions About Mutual Fund Share Pricing
- Financial Web: How Mutual Funds are Priced
- Investing in Mutual Funds.com: Mutual Fund Prices: How They're Determined
- Investor Guide.com: Basic Mutual Fund Concepts
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