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 traded on the secondary market – as are other instruments, such as stocks and exchange-traded funds (ETFs).

Key Takeaways

  • 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 tradeable 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.

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.

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 the 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.

Mutual fund expense ratios vary based on the fund class. As per Morningstar, 1.00% is the average for actively-managed large-cap stock funds, 1.10% is the average for mid-cap stock funds, and 1.20% is the average for small-cap stock funds; a passively-managed S&P 500 index fund has an average expense ratio of 0.15%; bond funds have an average expense ratio of 0.75%.

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.