Mutual Fund Pricing Is Mandated By Law
According to applicable laws in the United States, mutual fund pricing needs to be determined at the end of each working day. In this regard, the net asset value or NAV of the mutual fund per share must be determined through dividing current fund assets fewer liabilities by number of shares held. In fact, mutual fund pricing is arrived at by taking the NAV of each share and adding sales charge to it.
Intensive Process
Mutual fund pricing process is very intensive and takes place at the time business is closing for the day, which most often is around four o'clock in the evening when the New York Stock Exchange closes. The actual responsibility of calculating the share price of the mutual fund is left to the mutual fund's accounting agent who in turn gets the mutual fund' prices from brokers or even from services dealing with pricing of funds.
Though it is necessary for mutual fund pricing to be done daily because it is required by the 1940 Investment Company Act, the process of disseminating these prices through NASDAQ is not compulsory. According to convention, such daily mutual fund pricing will nevertheless still be released by NASDAQ each day.
Essentially, companies offering mutual funds will offer to the public different share classes with each class in turn carrying its own fee structure. Though there is no way that these mutual funds can be classified as risk-free or beneficial, it is possible to classify them according to their functioning as well as type of fund.
The norm is that once the mutual fund pricing has been fixed at the beginning of the trading day, these prices will not change during the rest of the day until the time for next mutual fund pricing comes around which as mentioned is at the end of the business day. What's more, barring a few companies such as Rydex Investments which prices its mutual funds twice in a day, the other available mutual funds have a single pricing window.
Nevertheless, it is anyone's guess whether the practice of single day mutual fund pricing will still hold well in the near term, given that companies such as Rydex Investment are trying to change the trend by performing pricing twice each day. The fact is that most people that invest in mutual funds do so for the long term. For them to be worried about blips in prices in the short term is not any big deal, since they are in it for the long haul.
Still, intraday mutual fund pricing are providing a new direction. If the investor feels that he needs addition pricing points to cater to market movements during the day, such a form of pricing can help in the elimination of certain unknown factors though at the moment, investors are not too sensitive to time and they are happy with the single mutual fund pricing that is currently being practiced.
