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.
- 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)
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
Offer price per unit
With $1,000, you buy:
Buy price per unit
With $1,000, you buy: 950 units valued at $950
Selling when NAV has increased to $1.10
Bid price per unit
If you sell your investment of 952.38 units, you receive $1,037.14
Sell price per unit
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”)||
|Redemption fee or realisation charge (also known as the “back-end load”)||
|Upfront charges (for wrap accounts)||
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|
|Fees charged to the fund|
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.
- 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.