Understanding fund prices

Find out about the differences in fund pricing between Unit Trusts and OEICs

Funds come in a number of different forms. But generally fall into two main categories – Unit Trusts and OEICs (open-ended investment companies).

These types of funds are similar in a number of ways, for instance, prices of both Unit Trusts and OEICs are determined by its Net Asset Value (NAV):

Net Asset Value = total value of the asset ÷ number of shares (or units) in issue

e.g. if the total asset of the fund is worth £10m and there are 1 million shares available, then the price per one share is 10m divided by 1m = £10.

These calculations are normally made once each business day by the fund providers and the latest prices for most Unit Trusts and OEICs can be found on : explore.

Dealing for both types of fund takes place on what is called a forward-pricing basis, this means that a trade instruction is placed at the next available valuation point. Therefore, investors do not know the exact price they will pay or receive until after the deal has been carried out.

Where Unit Trusts and OEICs differ is in the manner prices are displayed and in the way charges and discounts are applied.

Unit Trusts

When you’re looking for a price for a Unit Trust, the probability is that there will be two – an offer price and a bid price.

UT Dual Price Example

The offer price is the price you will pay if you are buying units and the bid price is the price you will receive if you are selling units.

The difference between the two is known as the bid-offer spread and the size of this spread will depend on whether you are dealing in the old style Commission-included share class of the Unit Trust or the new Commission-excluded version.

For a Commission-included Unit Trust, the difference is made up of the costs incurred by the Fund Manager when buying the underlying holdings of the fund as well as the associated charges such as Stamp Duty and any stockbroking commission. In addition, this bid-offer spread also includes the initial charge.

Commission-included Unit Trust pricing

UT Commission Included

Commission-excluded Unit Trusts on the other hand tend to have a significantly smaller bid-offer spread as there is no initial charge included. Commission-excluded Unit Trusts are available on both the Willis Owen and the Cofunds platforms.

Commission-excluded Unit Trust pricing

UT Clean Example

OEICs

Whereas Unit Trusts are dual-priced, there is normally just one price quoted for an OEIC. This is sometimes referred to as the single or mid price.

OEIC Single Price

When you buy shares in an OEIC, any initial charge is simply added to this single price.

However, if you invest via a platform such as Willis Owen or Cofunds, you will be buying the Commission-excluded share class of your chosen OEIC so there will be no initial charges to pay.

OEIC pricing

OEIC Pricing

With the advent of Commission-excluded funds with zero initial charges, trading in funds on platforms with a potential 5-6% bid-offer spread is now a distant memory.


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