Whether you are buying or selling shares in a fund, mutual fund trades are executed once per day, after market close, at 4 p.m. Eastern Time; 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, they are executed by the fund company rather than being traded on the secondary market – as are other instruments, such as stocks and exchange-traded funds (ETFs).

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 be placed earlier than the market close (2 p.m. Eastern Time), 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.

Calculating Price

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 loads or fees that are due. The NAV is calculated daily after market close 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 total number of shares outstanding for the fund, which results in the NAV per share for that day. Buy and sell orders for that day are then executed using that NAV.

In addition to the NAV, investors need to take into consideration 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 redemptions and are added to the NAV purchase price when buying shares.