Unlike a share of publicly traded stock, a typical stock mutual fund is not bought and sold throughout the day; the price per share is computed once per day, after the stock markets have closed.  A stock mutual fund is comprised of a diverse portfolio of publicly traded companies, and at the end of the trading day the total value of the holdings are computed based on each holding’s price when the markets closed.  When the total value of a fund is computed, it is then divided by the number of shares that exist for that fund to determine the price per share.  If you were to invest or divest from a mutual fund you would not know how much you paid or received per share until the markets closed and the figures were tallied.

If you choose to invest in a loaded mutual fund, meaning a fund with a sales charge, the price per share is recalculated.  As an example if you were to invest $10,000 in a typical A share of a stock mutual fund that had a closing price per share of $50 you would not purchase 200 shares at $50 apiece.  Prior to your $10,000 being invested a typical sales charge of 5.75% will be charged, leaving you with $9,425 to invest.  Divide that by the $50 p/share and you’ve bought 18.85 shares (you can own fractional shares).  But instead of your investment statement showing a commission paid of $575, your statement will add the commission to the price per share.  In this instance your statement will show that you paid roughly $53.05 per share for 188.5 shares.

Many investors find the above arrangement deceptive and are finding ways to avoiding sales charges altogether.

Disclosure