Have you ever invested in a fund and wondered why it doesn’t immediately show up in your portfolio as per stocks, investment trusts and exchange-traded funds (ETF)?

Sadly it typically takes a day for your fund ‘buy’ order to be processed and the investment to appear in your ISA, SIPP (self-invested personal pension) or other account. The same applies for ‘sell’ orders and leaving your portfolio.

Stocks, investment trusts and ETFs allow transactions in real-time pricing so you can see at what price you are transacting at before you invest.

Open-ended funds are forward priced. This means unit trusts and Oeic funds are priced only once a day.

When someone places an order, it will trade at the price on the next valuation point, which could be up to 24 hours later.

In rare cases for funds with illiquid assets, the pricing could occur less regularly in either a week or a month.

MORE EFFICIENT PROCESSING

‘The advantage of forward pricing is that it enables the fund manager to manage cash flow efficiently as there is only one aggregated amount taking into account all of the buys and sells in a period,’ says Ryan Hughes, head of active portfolios at investment platform provider AJ Bell.

While this method can be tedious for investors, forward pricing helps fund managers efficiently process large numbers of small transactions every day, which is particularly helpful with large funds.

The price of a fund is determined by the value of its assets, which is then divided by the number of units in issue.

WHY IS THE BID/OFFER SPREAD IMPORTANT?

Investors should pay close attention to the bid/offer spread as this can reflect how easy it is to buy and sell units in a fund.

The bid is the price investors get when selling a unit and the offer is the price that investors pay for a unit, while the spread is the difference.

The bid/offer spread on a fund is purely a function of the dealing costs and is not related to its popularity or size.

Unit trusts also have a bid/offer spread but Oeics are single priced. The latter have a mechanism called ‘swing pricing’ which occurs when a fund provider adjusts the net asset value of a fund in order to pass on the costs of trading to individuals that are buying and selling within their accounts.

It is designed to protect longer-term investors from having the value of their accounts eroded by the transaction activity of others within the same fund.

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