Source: istock

When Do Mutual Funds Update?



A mutual fund’s net asset value is updated once a day after the U.S. stock market closes — usually between 4:00 p.m. and 6:00 p.m. ET. A mutual fund pools resources from investors to invest in several asset classes like bonds, stocks, money market instruments, and other securities. Mutual funds give an investor access to diversified portfolios at a lower price. A mutual fund is managed by a professional fund manager.

Mutual funds are classified into various kinds of categories based on the type of securities they invest in, the returns they seek, and their investment objectives.

Why do mutual funds trade at the end of the day?

Mutual funds only trade once a day after the equity market closes. A mutual fund's price is determined by the net asset value calculated after the stock markets close. The net asset value is calculated by dividing the total net assets by the total units outstanding. To determine a mutual fund's total net assets, subtract the mutual fund’s liabilities like operational expenses or fees owed to banks from the current value of the fund’s assets.

Net Asset Value = [Assets – (Liabilities + Expenses)] / Number of units outstanding 

A mutual fund's reported net asset value indicates the price a buyer pays or a seller would receive after deducting any fees. The net asset value is determined at the end of the market day because the market value of stocks or ETFs fluctuates significantly throughout the trading day.

Source: istock

Let's assume a mutual fund has $100 million in securities, $20 million in cash and cash equivalents, and $10 million in liabilities. Let's also assume that it has 10 million shares outstanding. Using the above formula, the net asset value is calculated as follows:

Net asset value = ($100,000,000 + $20,000,000 - $10,000,000) / 10,000,000 = $11.00

For the given day, the mutual fund’s shares will trade at $11.00 per share.

What time do mutual funds update?

A mutual fund’s price is calculated once a day after the equity markets close at 4:00 p.m. ET in the U.S. There isn't a specific timeline when a mutual fund must update and submit its net asset value to regulatory organizations. Usually, mutual funds calculate their net asset values between 4:00 p.m. and 6:00 p.m. ET.

The trade cutoff time is different from a trade update time. The trade cutoff time is the time before all the buy and sell orders for a mutual fund have to be processed. For example, if regulatory authorities mandate a cutoff time of 2:00 p.m. ET, then the buy and sell orders received before 2:00 p.m. will be executed at the net asset value of that particular date. If an order is submitted after the trade cutoff time, it will be processed based on the net asset value of the next working day.

Why does it take so long for mutual funds to update?

Mutual funds take time to update since they have to reconcile the stock prices and any corporate actions that took place on that particular day. A mutual fund’s net asset value is only updated once a day because securities' prices fluctuate significantly during the normal trading day.

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