What Time Do Mutual Funds Trade Each Day?
Understand the unique daily pricing and transaction rules for mutual fund investments.
Mutual funds serve as a popular investment vehicle, pooling money from numerous investors to purchase a diversified portfolio of stocks, bonds, or other securities. This collective investment approach allows individuals to gain exposure to a broad range of assets that might otherwise be inaccessible or too expensive to acquire individually. Managed by professional fund managers, mutual funds aim to achieve specific investment objectives, such as growth or income, on behalf of their shareholders.
How Mutual Fund Trading Works
Mutual funds operate differently from stocks or exchange-traded funds (ETFs) when it comes to daily trading. Unlike stocks, which trade continuously throughout the day on major exchanges with prices fluctuating in real-time, mutual fund shares do not trade on these exchanges. Instead, transactions involving mutual funds, whether buying new shares or selling existing ones, are processed only once per business day. Investors do not see real-time price quotes.
All buy and sell orders for mutual fund shares are accumulated throughout the trading day. These aggregated orders are then processed after the close of the major U.S. stock exchanges, which typically occurs at 4:00 PM Eastern Time (ET). This daily processing ensures that all investors who place orders on a given day receive the same price for their transactions.
Calculating Net Asset Value (NAV)
The price at which mutual fund shares are bought or sold is known as the Net Asset Value (NAV) per share. The NAV is calculated once per day, typically after the close of the New York Stock Exchange (NYSE) at 4:00 PM ET. This calculation reflects the value of the fund’s underlying assets and is central to mutual fund pricing.
To determine the NAV, the fund’s total assets, including the market value of all securities, cash, and accrued income, are summed. From this total, the fund’s liabilities, such as expenses and accrued fees, are subtracted. The resulting net value is then divided by the total number of outstanding shares held by investors to arrive at the NAV per share. For example, if a fund has $100 million in assets, $1 million in liabilities, and 10 million shares outstanding, its NAV would be $9.90 per share.
All purchase and redemption orders placed and accepted on a given business day will receive that day’s calculated NAV. The daily NAV calculation is a regulatory requirement, ensuring fair and consistent pricing for all shareholders.
Understanding Order Cutoff Times
The specific time an investor places a mutual fund order is crucial due to established cutoff times. Most mutual fund companies and brokerage firms set their daily order cutoff time to coincide with the close of the major U.S. stock exchanges, which is typically 4:00 PM ET. This cutoff dictates which day’s NAV an investor will receive for their transaction.
If a purchase or redemption order for a mutual fund is placed and received by the fund or its authorized agent before the cutoff time on a business day, it will be executed at that day’s NAV. For instance, an order placed at 3:00 PM ET on a Tuesday would receive the NAV calculated after the market closes on that Tuesday.
Conversely, if an order is placed after the daily cutoff time, it will not be processed until the next business day. This means the transaction will be executed at the NAV calculated after the market closes on that subsequent business day. For example, an order submitted at 4:30 PM ET on a Tuesday would receive Wednesday’s NAV, assuming Wednesday is a business day. It is important for investors to be aware of their specific brokerage or fund company’s cutoff time.
Post-Trade Processing and Settlement
While mutual fund orders are priced at the daily NAV, the actual transfer of funds and shares, known as settlement, takes additional time. After an order is executed and priced, the process of moving the investment shares to the buyer’s account and the cash to the seller’s account begins.
The settlement period for mutual fund transactions typically ranges from one to three business days after the trade date. For example, a trade executed on a Monday might settle by Wednesday or Thursday. During this period, the funds are debited from the buyer’s account and credited to the seller’s account.