Forward Pricing on Unit Trusts

sunil1234

Following a query on my cost to buy some units, i received this reply. I calculated the buy price by waiting until the day i was traded on was published, took the buy price from the web and deducted 5.25% as the claimed initial charge saving. When my actual buy price was .09p higher per unit i queried it as i want to understand the calculation and also to make sure there was no errors as i have a lot of funds being fed back into the market at the moment

Any confirmation on the below please

The buy price of a fund will be calculated on what is known as a “creation up” basis. The fund manager will work out a creation price which is not published and which they believe is a fair price to create new units of a fund. The initial charges are then added on to the creation price to give the published buy price of a fund. In your instance, as there is a full initial saving on the fund, you have purchased the units at the creation price of 33.21p. Please note, as explained above, this is not calculated by deducting the initial saving of 5.25% from the buy price of 34.95p(which would give you the buy price of 33.12p that you refer to).

cepheus

There is a cost involved in creating new units when you buy which might explain the discrepancy.

However, the overall cost of 'trading' unit trusts can in some circumstances be remarkably cheap compared with Investment trusts and shares, not least because there is no stamp duty to pay.

To me what is important is the overall cost of buying then selling the trust. My broker Hargreaves Lansdown gave me this answer for a particular unit trust they offer a 'full discount' on

The lowest price that a new unit can be purchased at is a separate creation price between the bid and offer prices. The creation price is the bid price plus any addition charges for creating the new units. With the full saving on the fund offered by Hargreaves Lansdown there would be no initial charge hence you would purchase units at exactly the creation price.

If you purchased a new unit in a Unit Trust with a full initial charge discount and then sold it the following day (assuming no price movement) the loss would be the spread between the creation and the bid price.

To give an idea of these figures the creation and bid prices for Blackrock absolute alpha on 19 March are as follows;

Creation price, 115.9 pence
Bid price, 115.7 pence.

I hope this is of some help.

The transparency in unit fund dealing is virtually non-existent and really should be a priority for the regulator.

sunil1234

cepheus wrote: »

The transparancy in unit fund dealing is virtually non-existent and really should be a priority for the regulator. There is a cost involved in creating new units when you buy which might explain the discrepency.

To me what is important is the overall cost of buying then selling the trust. My broker Hargreaves Lansdown gave me this answer for a particular unit trust they offer a 'full discount' on


I hope this is of some help

thanks for the reply. :beer:

This creation price sucks:(