Mutual Fund Valuation and Transactions

This set of vocabulary flashcards covers concepts related to mutual fund transactions, pricing structures (NAV/POP), sales charges, and regulatory requirements based on the lecture transcript.

Negotiable security

A security that trades in the secondary market, meaning investors buy and sell it with each other.

Redeemable security

A security, such as a mutual fund, that cannot be traded between investors and must be bought from or sold back to the fund issuer.

Net Asset Value (NAV)

The value of a mutual fund on a per-share basis, calculated as: $\text{NAV} = \frac{\text{net assets}}{\text{shares outstanding}}$.

Net assets

The value determined by subtracting a fund's liabilities (such as redemptions, management fees, and administrative costs) from its portfolio assets.

Forward pricing

The process where mutual funds process transactions once per day using the NAV calculated after the market closes at 4:00 pm ET.

Fractional shares

Mutual fund shares that can be purchased in thousandths, or up to 3 decimal places (e.g., $392.157$ shares).

Sales charge (Load)

A fee assessed on mutual fund transactions to compensate the selling group for distributing shares.

Front-end load

A sales charge assessed at the time a customer purchases mutual fund shares, typically associated with Class A shares.

Back-end load

A sales charge assessed when a customer liquidates or sells their mutual fund shares.

Public Offering Price (POP)

The total price a customer pays for a front-end loaded fund, calculated as: $\text{POP} = \text{NAV} + \text{SC}$.

Maximum sales charge

The highest allowable sales charge under FINRA rules, which is $8.5\%$ of the POP.

POP Formula (using percentage)

The calculation used to find the offering price when given a sales charge percentage: $\text{POP} = \frac{\text{NAV}}{100\% - \text{SC}\%}$.

Sales Charge Percentage Formula

The calculation used to determine the sales charge percentage if NAV and POP are known: $\text{SC}\% = \frac{\text{POP} - \text{NAV}}{\text{POP}}$.

Ask

A synonym for the Public Offering Price (POP), representing the price a customer pays to buy.

Bid

A synonym for the Net Asset Value (NAV), representing what the firm is willing to pay the customer when they sell.

Redemption fee

An additional fee, usually less than $1\%$, that may be assessed when shares are liquidated; it is not technically considered a sales charge.

Dividends

Distributions made to investors when portfolio securities pay income, such as stock dividends or bond interest.

Capital gains

Distributions made to investors, generally once per year, when the fund sells a security at a profit.

Mutual fund settlement

The requirement that a fund must fulfill investor redemption requests within seven (7) days.

Conversion (exchange) privilege

A feature where no new sales charge is assessed if an investor sells shares and uses the proceeds to purchase a new fund within the same fund family.

Fund family

A set of mutual funds offered by the same sponsor.