Definition of Forward Pricing

Forward pricing is the way in which open end mutual funds are valued for investors who wish to purchase or redeem shares of the fund. Mutual funds usually price their shares at the end of the business day. The price to be paid or received by the investor will be the price that is next calculated after the fund receives their order.

Applying "Forward Pricing" to Securities Exams:

Most Open end mutual funds are priced by formula. That formula is NAV + SC = POP. When the fund company determines the net asset value (NAV) it adds the sales charge (SC) to determine the public offering price (POP) for investors who wish to purchase the shares. Investors who wish to redeem the shares will redeem their shares at the NAV. All shares will be purchased at the POP that is next calculated after the purchase order is received. All investors who wish to redeem their shares will receive the NAV that is next calculated after the redemption order is received. Forward pricing means that the investors who place their orders to purchase or redeem open end mutual funds will not know the exact price that they will pay, if they are purchasing the fund, nor will they know the exact price they will receive, if they are redeeming their mutual fund shares. No load mutual funds are not priced by formula, as the the fund company does not charge a sales charge to invest. Investors who purchase the mutual fund shares will pay the NAV that is next calculated, and investors who redeem their shares, will receive the NAV that is next calculated. Mutual funds must price their shares ( calculate the NAV) at least once per business day. The exact time and method of pricing will be detailed in the mutual fund’s prospectus. Be sure that you have mastered the pricing and operation aspects of open end mutual funds as a number of questions will appear on your exam testing these important concepts. Be sure your are ready to pass your exam with our Greenlight pass guarantee.

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