Unit trusts: Guide to pricing and fees

5 min. read

How is the price of your unit trust or fund determined? Find out about bid-offer pricing, single pricing, and the fees and charges that can affect your returns.

Key takeaways

Funds can be priced using either “bid and offer pricing” or “single pricing”.
The unit price is based on the fund’s net asset value (NAV) divided by the number of units outstanding.
You will need to pay sales or redemption charges when you subscribe to or redeem units.
Recurring fees are paid by the fund and include management fees, trustee fees and other fees. These costs are passed on to you.

Funds are priced either by the “bid and offer pricing” method or the “single pricing” method. You can find details of the pricing method in the prospectus and the product highlights sheet.

You can get updated valuations of your fund from the daily newspapers and the FundSingapore.com website. Most funds in Singapore allow daily buying and selling of units.

How the price is determined

The price of each unit is based on the fund’s net asset value (NAV) divided by the number of units outstanding.

The NAV is the market value of the fund's net assets (investments, cash and other assets minus expenses, payables and other liabilities). The NAV is usually computed daily to reflect changes in the prices of the investments held by the fund

Bid and offer pricing

In the “bid and offer pricing” method, the subscription charge is added to the NAV per unit, while the redemption charge is deducted from the NAV per unit.

Here is what the terms mean:

Bid – Price at which investors sell their units
Offer – Price at which investors buy units
Spread – Difference (spread) between bid and offer prices of fund’s units reflects subscription (sales) and redemption charges (if any)

Single pricing

The fund provides a single quote that reflects the NAV per unit. The subscription charges are deducted from the amount invested before the units are allocated. Any redemption charge will be deducted from the redemption proceeds.

In the following example, the fund is assumed to have a single pricing structure and to levy both subscription and redemption charges.

Comparing pricing methods

The example below shows how a $1,000 investment is calculated for bid and offer versus single pricing:

Scenario	Bid and offer pricing	Single pricing
Buying with $1,000 investment Assumptions: Initial 5% subscription charge NAV of $1.00 per unit	Offer price per unit = NAV of $1.00 + initial sales charge of 5% = $1.05 Number of units bought = $1,000 /$1.05 = 952.38 With $1,000, you buy: 952.38 units valued at $952.38	Buy price per unit = NAV of $1.00 per unit = $1.00 Number of units bought = $950 (5% sales charge deducted from $1,000) /$1.00 = 950 With $1,000, you buy: 950 units valued at $950
Selling when NAV has increased to $1.10 Assumptions: 1% redemption charge at sale NAV has increased to $1.10 per unit	Bid price per unit = NAV of $1.10 - redemption charge of 1% = $1.089 Sale proceeds = $1.089 X 952.38 units = $1,037.14 If you sell your investment of 952.38 units, you receive $1,037.14 (this is less than the NAV of $1,047.62 ($1.10 X 952.38 units))	Sell price per unit = NAV of $1.10 = $1.10 Sale proceeds = ($1.10 X 950 units) X 99% (Less redemption charge of 1%) = $1,034.55 If you sell your investment of 950 units, you receive $1,034.55 (this is less than the NAV of $1,045 ($1.10 X 950 units))

Scenario

Bid and offer pricing

Single pricing

Buying with $1,000 investment

Assumptions:

Initial 5% subscription charge
NAV of $1.00 per unit

Offer price per unit
= NAV of $1.00 + initial sales charge of 5%
= $1.05

Number of units bought
= $1,000 /$1.05
= 952.38

With $1,000, you buy:
952.38 units valued at $952.38

Buy price per unit
= NAV of $1.00 per unit
= $1.00

Number of units bought
= $950 (5% sales charge deducted from $1,000) /$1.00
= 950

With $1,000, you buy: 950 units valued at $950

Selling when NAV has increased to $1.10

Assumptions:

1% redemption charge at sale
NAV has increased to $1.10 per unit

Bid price per unit
= NAV of $1.10 - redemption charge of 1%
= $1.089

Sale proceeds
= $1.089 X 952.38 units
= $1,037.14

If you sell your investment of 952.38 units, you receive $1,037.14
(this is less than the NAV of $1,047.62 ($1.10 X 952.38 units))

Sell price per unit
= NAV of $1.10
= $1.10

Sale proceeds
= ($1.10 X 950 units) X 99% (Less redemption charge of 1%)
= $1,034.55

If you sell your investment of 950 units, you receive $1,034.55
(this is less than the NAV of $1,045 ($1.10 X 950 units))

Fees and charges

Fees can reduce the returns from your unit trusts. Fees are usually payable regardless of how well or poorly the fund performs. For your fund to grow in value, the returns must be greater than the fees and charges incurred.

It is also important to assess if the fees paid justify the ongoing advice/service the distributor offers you, and the costs of the fund manager managing the underlying investments in the fund.

There are two broad categories of fees:

One-off fees and charges

These fees are usually charged once per transaction when you subscribe into or redeem a fund. Typically, these fees are paid to the distributor and may be negotiable between you and the distributor.

Subscription fee or initial sales charge (also known as “front-end load”)	Payable to the distributor when you buy a fund. Ranges from 1.5% - 5% of your investment. Distributors that levy initial sales charges do not usually charge redemption fees
Redemption fee or realisation charge (also known as the “back-end load”)	Payable to the distributor whenever you sell or redeem the fund. Ranges from 1% - 5% of your investment. Some funds progressively reduce the redemption fee if you hold your investment over a longer period of time. Distributors that charge redemption fees do not usually levy initial sales charges.
Switching fee	Payable to the distributor when you switch from one fund to another fund managed by the same fund manager. Typically, about 1% of your investment Usually, if you are charged a switching fee, you would not be charged initial sales charges for that transaction.
Upfront charges (for wrap accounts)	Payable to the distributor whenever you place new monies with the distributor. Ranges about 2% - 3% of new monies. Only applicable if you sign up for a wrap account with the distributor. Typically, you would not need to incur initial sales charges, redemption fees or switching fees for transactions if you are on a wrap account.

Recurrent fees and charges

There are two types of recurring fees;

Fees that are payable by you;
Fees that the fund manager and other parties charge the fund for providing their services.

Fees that are payable by you
Platform Fees			This is incurred if you buy funds through a fund platform or buy funds through a financial adviser who uses a fund platform. Ranges from 0 – 0.3% per annum of the total value of fund holdings held with the fund platform. Payable to the fund platform provider. Platform fees will be deducted from the cash holdings placed with the fund platform. If you do not have cash holdings placed with the fund platform, some of your fund holdings (typically the best-performing ones) would be sold off to pay the platform fees.
Wrap fees			Payable to the distributor if you sign up for a wrap account. Approximately 1% per annum of the total value of assets under the advice of the distributor. Payable to the distributor.
Fees charged to the fund
Management fees			Payable to the fund manager for managing the fund. Actively managed funds charge management fees ranging from 1.0% - 2.0% per annum of the fund’s NAV, while passively managed funds generally charge management fees below 1%. 20% - 60% of the management fees are paid by the fund manager to the distributor so that the distributor would provide ongoing advice/service to you. This amount paid to the distributor is also known as a trailer fee.
Others fees			Payable to the fund’s service provider such as the trustee, administrator, custodian, accounting and valuation provider and auditor.

The fees charged to the fund make up the total expense ratio (TER). The TER is usually between 1.0% and 2.5% of the fund’s NAV, and should be disclosed in the fund’s factsheet.

Tip

Assess a fund’s TER before deciding whether to invest in it. Use the TER to compare the costs that will be incurred by (i) different funds with the same investment objectives or approach, and (ii) the same fund through different channels.

Assess an actively managed fund's TER and track record against its passively managed equivalent, if any, before deciding whether to invest in it, and vice versa.

The bottom line

Find out the maximum amount that the fund can levy for each charge. Ask for a clear breakdown of all the fees and charges that you expect to pay for your investment. Do note that charges that are not currently levied may still be imposed in the future.

See also:

Guide to investments