How Are Prices Set in an Investment Fund?


Quick Answer

Since there are many types of investment fund such as mutual funds, exchange-traded funds, hedge funds and money market funds, the pricing depends on the fund itself and current market conditions. For example, mutual fund prices are the fund’s net asset value plus any applicable sales charges, explains Investopedia.

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Full Answer

The net asset value of a mutual fund is its net assets minus liabilities divided by the number of shares outstanding, states Investopedia. Mutual funds must compute their net asset value at least once a day at the end of the trading on the New York Stock Exchange. If an investor purchases shares of a mutual fund mid-morning, the price the investor pays for the fund remains unknown until the end of the day’s trading.

Exchange-traded funds work in the same manner as mutual funds except for pricing, according to T. Rowe Price. ETFs trade like individual securities; therefore, markets dictate the price. Investors can buy ETFs at any price throughout the trading day while mutual fund investors can only buy shares at the fund’s net asset value, and that value is unknown until the end of the trading day. ETFs originated in 1993 as a new way to invest in market indexes and the securities that comprised the indexes.

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