When Are Mutual Fund Orders Executed?

Whether you are buying or selling shares in a mutual fund, most mutual funds execute trades once per day at 4 p.m. ET after the close of the market. Orders are typically posted by 6 p.m. Trade orders can be entered through a broker, a brokerage, an advisor, or directly through the mutual fund. Unlike other instruments like stocks and exchange-traded funds (ETFs), they are executed by the fund company rather than traded on the secondary market.

Key Takeaways

• Mutual fund orders are executed once a day after the market closes.
• Buy or sell orders can be made through a brokerage, advisor, or the mutual fund.
• Mutual fund shares are very liquid, easily traded, and can be bought or sold on any day the market is open.
• An order will be executed at the next available net asset value, which is determined after the market closes each trading day.
• When thinking about price, investors need to take into account the fees and sales loads associated with funds.

Mutual Fund Trading and Settlement

Mutual fund shares are highly liquid. They can be bought or sold (redeemed) on any day when the markets are open. Whether working through a representative, such as an advisor, or directly through the fund company, an order can be placed to buy or redeem shares, and it will be executed at the next available net asset value (NAV), which is calculated after market close each trading day.

Some brokerages and fund companies require orders to be placed earlier than the market close, while others allow same-day execution right up to the market close.

The settlement period for mutual-fund transactions varies from one to three days, depending on the type of fund.

Important

Fees mutual fund investors must pay include loads, paid to a broker or advisor when certain types of funds or bought or sold; transaction fees, charged every time the investor buys or sells a fund; and expense ratios, percentages that reflect the fees paid to the fund company to manage and operate the fund.

Calculating Mutual Fund Prices

The price paid for the shares purchased (also the amount received for the shares redeemed) is based upon the new NAV, combined with any purchase or redemption load fees that are due.

The NAV is calculated daily after the market closes to determine the closing market value of all the combined securities held by the fund, minus the fund’s liabilities. That figure is then divided by the fund’s total shares outstanding, which results in the NAV per share for that day. Buy and sell orders for that day are then executed using that NAV.

Note

Fund expense ratios vary by investment objective and whether the fund is actively or passively managed. According to Morningstar, actively managed U.S. equity funds typically charge 0.60%, while their passive counterparts charge 0.08%.

In addition to the NAV, investors need to consider the various fees or sales loads associated with mutual funds, such as front loads (commissions), deferred sales charges due upon redemption, short-term transaction and redemption fees, exchange fees and account fees.

Such fees reduce the NAV per share price received for redemption and are added to the NAV purchase price when buying shares.

How Safe Are Mutual Funds?

Mutual funds are relatively safe investments when you compare them to riskier investments like stocks. That’s because they are pooled investments that hold a variety of assets in one basket. For instance, a blue chip mutual fund has many different company stocks. This gives the mutual fund a diversified portfolio, which helps mitigate the risk associated with holding one or more stocks on their own. Keep in mind, though, that no investment is entirely safe. Each comes with a certain amount of risk, including mutual funds.

How Do I Invest in Mutual Funds?

Investing in mutual funds is a fairly straightforward process. Understand your investment goals, investment time horizon, risk tolerance, and your financial situation. Having this information on hand can help you determine which funds are right for you. You can purchase shares of mutual funds through an employer-sponsored plan or other investment account, such as a brokerage account. You can also buy shares through an investment professional who can help you navigate through all the choices available to you.

What Fees Do I Pay for Mutual Funds?

Just like any investment, mutual funds charge investors fees. Some of the most common fees associated with these investments include sales loads management fees, account fees, purchase fees, expense fees, and redemption fees. Depending on the type of fund and how you invest, these fees may affect your returns, so it’s important to understand the fee structure before you purchase mutual fund shares. Each mutual fund comes with a fact sheet that lists their fees. Mutual fund companies also list their fees on their websites.

The Bottom Line

Investing in mutual funds is a great way to help diversify your portfolio. A mutual fund is like a basket of securities that pools money together from multiple investors and is overseen by a fund manager. Funds invest in a range of assets, including stocks, bonds, currencies, indexes, and cash among others. Choosing the right ones for your portfolio depends entirely on your situation, so make sure you know what your goals, time horizon, risk tolerance, and financial situation are before you jump into mutual funds.

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