Under various schemes offered by the Mutual Fund, the units of funds are purchased, redeemed, and repurchased. These prices vary according to the type of funds one deals in and the fund’s portfolio must be thoroughly studied before investing in y\the fund.
Purchase price or sales price is the price paid to buy one unit of the fund. However, the fund can be loaded or it can be a No Load fund. In the former case when fund levies an entry load then the purchase price will be greater than net asset value of the fund. The price will depend upon the entry load levied on the fund. For a ‘No Load’ fund the purchase price is same as NAV. Generally, Funds charge an entry load between 1% and 2%. Exit loads range from 0.25% and 2.00%.
For e.g. Say an investor invests Rs 20,000/- and the current NAV is Rs.20/-. The entry load levied by the Mutual Fund is 1.00%; the price at which the investor invests is Rs.20.20 per unit. Units in a Mutual Fund are allotted to an investor depending upon the amount invested; it is not on thee basis of number of units purchased.
The investor receives 20000/20.20 = 990.099 units.
Now suppose the same investor decides to redeem his 990.099 units. The current NAV is Rs 25/- and the exit load is 1.25%. So the sale or redemption price per unit becomes Rs. 24.9875. The investor therefore gets 99.099 x 24.9875 = Rs.24762.3626.
So the purchase price here is Rs20.20 per unit as the investor has to pay the toll tax for entering the mutual fund bridge. Had it been a NO Load fund the purchase price would have been Rs 20.
Generally, a Close-ended Fund has a fixed maturity period that range from 2 to 14 years. They sale only a fixed number of shares in the initial public offering after which the shares typically trade on a secondary market. The cost of closed-end fund shares that do business on a secondary market after their initial public offering is totally dependent on the market and doesn’t depend on the initial NAV. It may be more than or less than the share’s net asset value. Repurchase price is the price paid by a close-ended scheme to repurchase its units that are trading in the secondary market. The repurchase price can either be the NAV or it might have an exit load associated with it.
Redemption price is the price received by the investor/customer on selling units of an open-ended scheme to the fund. In case of funds that does not levy an exit load the redemption price is same as the net asset value. However, in case the fund levies an exit load, the redemption price is lower than the net asset value. In that case the exit load percentage is subtracted from the NAV at the time of redemption of the fund.