If I Sell a Mutual Fund Today, What Price Do I Get?
Understand how mutual fund sale prices are determined. Learn why your order's execution price depends on the day's closing valuation, not real-time quotes.
Mutual funds operate differently from individual stocks when it comes to pricing sales. Unlike stocks, which trade continuously throughout the day on exchanges, mutual funds have a unique pricing structure that impacts the final price an investor receives.
How Mutual Fund Pricing Differs
Individual stocks are priced in real-time based on supply and demand, allowing their value to fluctuate throughout the trading day. Mutual funds, however, do not trade on exchanges in this continuous manner. Instead, they are collective investment vehicles where money from many investors is pooled to buy a diversified portfolio of securities like stocks, bonds, and other assets.
The value of a mutual fund is determined by the collective value of its underlying holdings, not by continuous bids and offers. When you place an order to sell mutual fund shares, the price you receive is calculated later, not at the moment you submit the order.
Understanding Net Asset Value (NAV)
The price an investor receives when selling mutual fund shares is based on the fund’s Net Asset Value (NAV). NAV represents the per-share value of a mutual fund, calculated once per business day, typically after the major U.S. exchanges close. It reflects the intrinsic value of the fund’s holdings at a specific point in time.
To calculate NAV, the fund determines the total market value of its assets, such as cash, stocks, and bonds. Liabilities, including management fees and administrative costs, are subtracted. The resulting net value is then divided by the total number of outstanding shares to arrive at the NAV per share. For instance, if a fund has $100 million in assets and $20 million in liabilities, with 2 million shares outstanding, its NAV per share would be $40.00 ($80 million / 2 million shares).
When Your Sale Price is Set
Mutual funds use “forward pricing,” meaning all buy and sell orders received on a given business day are processed at the NAV calculated after that day’s market close. This regulatory requirement, established by the Securities and Exchange Commission (SEC), ensures fairness and prevents shareholder dilution. Therefore, a sell order placed today will be priced at today’s closing NAV, not the last quoted NAV when the order was placed.
Investors will not know the exact price at the time they place their sell order. The execution price will be the next available NAV computed after the fund receives the order.
This system ensures all investors buying or selling shares on the same day receive the same price, regardless of the specific time their order was placed during market hours.
Impact of Daily Cut-Off Times
Forward pricing involves daily cut-off times. Most mutual fund companies and brokerages adhere to a cut-off time, typically 4:00 PM Eastern Time (ET), aligning with the close of the New York Stock Exchange (NYSE). This deadline dictates which day’s NAV applies to your transaction.
If your sell order is received by the mutual fund company or your brokerage before the 4:00 PM ET cut-off, it will be processed at the NAV calculated at the close of the market. Conversely, if your order is placed after the 4:00 PM ET cut-off, it will not be processed until the next business day’s closing NAV. For example, an order placed at 4:30 PM ET on a Monday would receive Tuesday’s closing NAV, meaning the transaction would not settle until a few days later.