Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ======Unit Price====== The Unit Price is the price you pay for one single unit or share of a collective investment, most commonly a [[mutual fund]]. Think of a mutual fund as a giant pizza made up of slices from many different companies (the fund's assets). The unit price is simply the cost of one slice of that pizza. This price is not arbitrary; it's a direct reflection of the total value of all the investments held by the fund. It is calculated daily by taking the fund's total [[Net Asset Value (NAV)]]—the value of all its assets minus any liabilities like fees—and dividing it by the total number of units that have been issued to investors. So, if a fund's portfolio is performing well, the value of its assets goes up, and consequently, so does its unit price. It’s the fund’s equivalent of a stock's [[share price]], but with a few key differences in how it's calculated and traded. ===== How is Unit Price Calculated? ===== The magic behind the unit price is a straightforward daily calculation. Fund managers don't just pluck a number out of thin air. Instead, at the end of every trading day, they perform the following calculation: **Unit Price = Total Net Asset Value (NAV) / Total Number of Units Outstanding** Let's break that down: * **Total Net Asset Value (NAV):** This is the engine of the calculation. To get the NAV, the fund adds up the current market value of all the [[stocks]], [[bonds]], and other assets it holds. Then, it subtracts any liabilities, which are typically the fund's operating expenses and [[management fees]]. What's left is the NAV, the true underlying value of the fund's portfolio. * **Total Number of Units Outstanding:** This is simply the total number of shares or units that investors like you currently own in the fund. ==== A Quick Example ==== Imagine the "Euro-American Value Fund" has the following: * Total value of its investments (stocks, bonds, etc.): €50,000,000 * Liabilities (fees, operational costs): €200,000 * Total units held by all investors: 2,000,000 First, we find the NAV: €50,000,000 (Assets) - €200,000 (Liabilities) = €49,800,000 (NAV) Now, we calculate the Unit Price: €49,800,000 (NAV) / 2,000,000 (Units) = **€24.90 per unit** So, if you wanted to buy into this fund today, you'd pay €24.90 for each unit. ===== Why Does the Unit Price Matter to a Value Investor? ===== For a [[value investing]] enthusiast, the unit price is a useful data point, but it's crucial to understand what it does and doesn't tell you. ==== Not Just About a Low Price ==== A common beginner's mistake is to think a low unit price means a fund is "cheap" or a better deal. This is a trap! A fund with a €10 unit price is not inherently a better value than a fund with a €200 unit price. The price itself is irrelevant without context. The €10 fund might simply be newer or have issued more units. The €200 fund might have a long, successful track record of growing its assets. What a value investor //really// cares about is the quality of the underlying businesses the fund owns and whether the fund manager bought them at a sensible price. Don't judge a fund by its unit price alone; judge it by the value it holds. ==== Tracking Performance, Not Timing the Market ==== The true utility of the unit price for a value investor is as a performance benchmark. By tracking the unit price over months and years, you can see how effectively the fund's management is growing the value of its underlying assets. * **Focus on the Trend:** Is the unit price generally trending upwards over the long term? This suggests the fund's investment strategy is working. * **Ignore the Noise:** Daily fluctuations are just noise. A value investor is focused on the five, ten, or twenty-year journey, not the daily bumps in the road. ==== Understanding Costs ==== Remember, the unit price is calculated //after// all the fund's expenses have been deducted from its assets. This is a critical insight! If a fund's unit price is consistently lagging behind its benchmark index, it could be a red flag that high fees are eating away at your returns. A value investor is always conscious of costs, and the unit price provides a transparent look at their impact. ===== Unit Price vs. Market Price ===== It's easy to confuse a fund's unit price with the [[market price]] of a stock or an [[Exchange-Traded Fund (ETF)]], but they operate very differently. * **Unit Price (Mutual Funds):** This price is set only **once per day**, after the market closes and the NAV has been calculated. All buy and sell orders placed during the day are executed at that single closing price. You don't know the exact price you'll get until after the trading day is over. This is also common for a [[Unit Investment Trust (UIT)]]. * **Market Price (Stocks & ETFs):** This price changes **continuously** throughout the trading day. It's determined by supply and demand on the [[stock exchange]]. You can watch the price of an ETF or a company like Apple tick up and down second by second, and you can buy or sell at any point during market hours at the current market price.