The Securities and Exchange Commission requires that open-ended mutual fund shares must be sold at their net asset value per share plus allowable sales charges or fees. Under Rule 22c-1 of the Commission, an issuer, underwriter, or dealer may not redeem or repurchase a share of a registered investment company or mutual fund “except at a price based on the current net asset value of such security[.]”
The Commission, in effect, defines “net asset value” in its Rule 2a-4 as a mutual fund company’s total assets minus its total liabilities, taking into account quotations or fair value of securities in the fund’s portfolio, expenses, provisions for taxes, and receivable dividends and other income. Mutual funds with redeemable shares must calculate their net asset value at least once each business day. The time of day at which the value is set is determined by the fund’s board of directors. Most funds have set shortly after the close of the major markets as the time for determining net asset value.
A per share net asset value is calculated by dividing the net asset value of the fund by the number of outstanding shares. That net asset value per share or “NAV” is made public by the fund and reported in daily newspapers. The NAV becomes the base price at which a share of the fund may be redeemed or purchased until the next determination of the NAV. Pre-set sales loads and purchase or redemption fees are added to the base price.
Shares of closed end funds that are traded in their own right rather than purchased or redeemed through the fund are not subject to the requirements for setting a net asset value. Shares of closed end funds may trade at or above or below their net asset value.
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