Whether you are buying or selling shares in a mutual fund, most mutual funds execute trades once per day at 4 p.m. Eastern Time, after the close of the market. They are typically posted by 6 p.m. Trade orders can be entered through a broker, a brokerage, an advisor or directly through the mutual fund.
However, unlike other instruments such as stocks and exchange traded funds (ETFs), they are executed by the fund company rather than traded on the secondary market.
- Mutual fund orders are executed once per day, after the market close at 4 p.m. Eastern Time.
- Orders can be placed to either buy or sell and can be made through a brokerage, advisor, or directly through the mutual fund.
- The shares of mutual funds are very liquid, easily traded, and can be bought or sold on any day the market is open.
- An order will be executed at the next available net asset value (NAV), which is determined after the market close each trading day.
- When thinking about price, investors need to take into account the fees and sales loads associated with funds.
Understanding When Mutual Fund Orders Are Executed
Trading and Settlement
Mutual fund shares are highly liquid. They can be bought or sold (redeemed) on any day when the markets are open. Whether working through a representative, such as an advisor, or directly through the fund company, an order can be placed to buy or redeem shares, and it will be executed at the next available net asset value (NAV), which is calculated after market close each trading day.
Some brokerages and fund companies require orders to be placed earlier than the market close, while others allow same-day execution right up to the market close.
The settlement period for mutual-fund transactions varies from one to three days, depending on the type of fund.
Fees mutual fund investors must pay include loads, paid to a broker or advisor when certain types of funds or bought or sold; transaction fees, charged every time the investor buys or sells a fund; and expense ratios, percentages that reflect the fees paid to the fund company to manage and operate the fund.
The price paid for the shares purchased (also the amount received for the shares redeemed) is based upon the new NAV, combined with any purchase or redemption load fees that are due.
The NAV is calculated daily, after the market closes, in order to determine the closing market value of all the combined securities held by the fund, minus the fund's liabilities. That figure is then divided by the fund's total shares outstanding, which results in the NAV per share for that day. Buy and sell orders for that day are then executed using that NAV.
Fund expense ratios vary by investment objective and whether the fund is actively or passively managed. According to Morningstar, actively managed U.S. equity funds typically charge 0.68%, while their passive counterparts charge 0.09%. An active bond fund charges 0.51% on average, while its passive counterpart typically charges 0.10%.
In addition to the NAV, investors need to consider the various fees or sales loads associated with mutual funds, such as front loads (commissions), deferred sales charges due upon redemption, short-term transaction and redemption fees, exchange fees and account fees.
Such fees reduce the NAV per share price received for redemption and are added to the NAV purchase price when buying shares.