Pricing, Valuation & Dealing: CMFAS M8 Notes

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Pricing, Valuation & Dealing

Fund units are bought and sold at a price derived from the scheme's net asset value (NAV) per unit, dealt on a FORWARD-pricing basis at the next valuation point, then settled over a set cycle; managers may apply single or dual (bid/offer) pricing, use dilution adjustments to protect ongoing holders from trading costs, and — in exceptional cases — suspend dealing.

8 min read9 sections

Must-know for the exam

NAV = total assets − total liabilities. NAV per unit = NAV ÷ number of units in issue, and it drives the dealing price.
A valuation point is the set time (often once per business day) at which assets are marked to market to strike the NAV.
FORWARD pricing = deal at the price struck at the NEXT valuation point (price not yet known); HISTORIC pricing = deal at the last known price.
Forward pricing prevents arbitrage against a stale price and treats investors in the same dealing window equally.
Orders received after the daily cut-off are dealt at the following valuation point, not the current one.
SINGLE pricing = one NAV-based price for buying and selling, with charges shown separately; DUAL pricing = higher offer price to buy, lower bid price to sell.
The bid-offer spread in a dual-priced fund is the gap between the offer (buy) and bid (sell) prices and embeds sales/dealing costs.
Open-ended funds CREATE units on subscription and CANCEL units on redemption, so the unit count changes with net flows and price stays anchored to NAV.
Redemptions are paid within the period disclosed in the offering documents; settlement occurs a set number of business days after the deal.
Dilution is the erosion of continuing holders' value by the transaction costs generated when others subscribe or redeem.
A dilution levy is an explicit charge on a large deal; swing pricing adjusts the single price up (net inflows) or down (net outflows) so transacting investors bear trading costs.
Suspension of dealing temporarily halts subscriptions and redemptions in exceptional cases — e.g. a closed principal market or inability to value assets fairly — to protect all investors.
The trustee/depositary provides independent oversight of valuation and pricing, safeguarding investors against mispricing.
In Singapore, valuation, pricing and dealing for authorised schemes are governed conceptually by the Code on Collective Investment Schemes under the SFA.

Traps that cost marks

Confusing gross asset value with NET asset value by ignoring the fund's liabilities.
Adding liabilities instead of subtracting them, or dividing gross assets without netting liabilities.
Dividing gross assets ($48m ÷ 20m = $2.40) and forgetting to deduct the $8m of liabilities first.
Confusing the valuation point (pricing time) with the settlement deadline or the launch price.
Mixing up forward pricing (next, unknown price) with historic pricing (previous, known price).
Thinking the problem is valuation frequency rather than the arbitrage risk of dealing at a stale, known price.
Assuming a same-day order always gets that day's price regardless of the cut-off deadline.
Describing dual (bid/offer) pricing and mislabelling it as single pricing.

Net asset value (NAV) and NAV per unit

The NET ASSET VALUE (NAV) of a fund is the market value of ALL its assets MINUS all its liabilities. Assets include the securities held, cash, and income receivable (such as accrued dividends and interest); liabilities include fees payable, expenses accrued and amounts owed.

The NAV PER UNIT is the figure that matters for dealing. It is the fund's total net asset value divided by the number of units in issue:

•NAV per unit = (Total assets − Total liabilities) ÷ Number of units in issue.
•Because it is a per-unit share of the fund's net worth, NAV per unit rises and falls with the market value of the underlying portfolio.

The portfolio is marked to market at each VALUATION POINT — a set time (typically once per business day) at which the fund's assets are valued to strike the NAV. The frequency and timing of valuation are set out in the fund's constituting and offering documents.

How the NAV is struck (valuation mechanics)

At the valuation point the manager (or an independent fund administrator/trustee) values each holding, usually at the last traded or an agreed reference price, converts foreign-currency assets at prevailing exchange rates, adds cash and accrued income, then deducts liabilities and accrued fees such as the management fee and trustee fee.

Independent oversight matters: for authorised schemes the TRUSTEE (or a custodian/depositary) safeguards assets and helps ensure units are correctly valued and priced, protecting investors from mispricing.

Where a market is closed, illiquid or a quoted price is unreliable or stale, the manager may apply FAIR-VALUE pricing — a reasonable estimate of what the asset would fetch — under the fund's valuation policy, rather than a distorted last price.

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