When Do Mutual Funds Update Their Prices?
Demystify how mutual fund values are calculated and updated, guiding your investment strategy.
Mutual funds allow individuals to pool money to invest in a diversified portfolio of stocks, bonds, or other securities. Understanding how these funds determine and update their value is important for investors. Unlike stocks that trade continuously, a mutual fund’s price follows a specific daily schedule, impacting when buy and sell orders are executed and at what price.
Understanding Mutual Fund Pricing
A mutual fund’s “price” is formally known as its Net Asset Value (NAV). The NAV represents the per-share value of the fund’s underlying holdings. It is calculated by taking the total market value of all assets held by the fund, subtracting its liabilities, and then dividing that result by the total number of outstanding shares.
The assets of a mutual fund include the market value of its investments, such as stocks and bonds, cash, cash equivalents, and accrued income like dividends or interest. Liabilities encompass obligations, including operational expenses, management fees, and payments owed to banks. This calculation provides a per-share snapshot of the fund’s intrinsic value.
The Daily Pricing Schedule
Mutual fund prices are typically updated once each day. This calculation occurs after major U.S. stock exchanges close, typically between 4:00 PM and 6:00 PM Eastern Standard Time (EST).
The Securities and Exchange Commission (SEC) mandates that mutual funds calculate their NAV at least once every business day. This daily valuation reflects the closing market prices of all the securities held within the fund’s portfolio for that trading day. Unlike stocks or exchange-traded funds (ETFs) that trade throughout the day, mutual funds only process transactions based on this single, end-of-day price.
Impact on Investor Transactions
The pricing method for mutual funds operates under a principle known as “forward pricing.” This rule, established by SEC Rule 22, mandates that investor transactions are executed at the next calculated NAV after the order is received. Consequently, investors do not know the exact price they will pay or receive when they place their order.
For instance, if an investor places an order to buy or sell mutual fund shares before the 4:00 PM ET cut-off on a trading day, that transaction will receive that day’s closing NAV. However, if the order is placed after 4:00 PM ET, it will be processed using the NAV calculated at the close of the next business day. It is also important that the funds for a purchase reach the mutual fund’s account before the cut-off time to receive that day’s NAV. Many intermediaries, such as brokerage firms, may have earlier internal cut-off times, sometimes around 3:45 PM ET, to ensure orders are submitted to the fund before the official 4:00 PM deadline.