The purchase price for a mutual fund unit is its Net Asset Value (NAV). The fund uses the daily NAV to give you units. The NAV you get depends on your order time, when your money arrives, and official cut-off times. SEBI and AMFI set these rules, and you must follow them.
Entry loads are gone. The price you pay is the NAV. Only a small stamp duty of 0.005% reduces your investment. This means you get slightly fewer units.
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Understanding Purchase Price
You only buy or sell open-ended funds once a day. All deals use the NAV from the end of the day. You cannot get prices during the day.
Your purchase price is the fund’s final value for that business day. The fund uses this price based on when it gets your order and money.
Components of Purchase Price
- Applicable NAV: The price for one unit. The fund uses this to give you your units.
- Statutory charges: A 0.005% stamp duty is taken from your investment.
Net Asset Value Impact on Purchase Price
The NAV changes daily. This happens when the fund’s investments go up or down. The fund calculates the new NAV after the market closes. Your purchase price is always the end-of-day NAV for your order.
Load Fees and Purchase Price Calculation
SEBI stopped all entry loads in 2009. You never pay extra when you buy. An exit load is different. A fund charges it when you sell. This lowers the money you get back, but it never changes the purchase price.
How does Purchase Price differ from Market Price?
For ETFs, units trade on stock exchanges. The price shifts all day based on buying and selling. This market price is always different from the NAV.
For open-ended funds, you buy directly from the fund company (AMC). You always buy at the day’s final NAV, not a changing market price.
Purchase Price Timing and Settlement
Two things decide which day’s NAV you get. First is your order time. Second is your money reaching the fund before the cut-off time.
If your money arrives late, your purchase rolls to the next business day. You will get the next day’s NAV.
Same-Day vs Next-Day Purchase Price Application
- If your order and money arrive before the cut-off, you get that same day’s NAV. This is true for all funds except liquid funds.
- If your money arrives late, you get the next business day’s NAV.
Cut-off Times for Purchase Price Determination
- Equity/Debt/Hybrid (non-liquid/overnight): The buying cut-off is 3:00 p.m. Your money must also arrive by then.
- Liquid/Overnight: The buying cut-off is 1:30 p.m. These funds have special NAV rules.
How Purchase Price is Calculated and Determined
The purchase price is the NAV. The fund calculates your units with the money left after it takes out the stamp duty.
The fund gives you units using the single NAV published each business day.
Asset Valuation in Purchase Price
Assets are the stocks, bonds, and cash the fund owns. The fund values them at their closing market prices.
These values change the NAV daily. This directly changes your purchase price.
Liability Deduction Process
Liabilities are the fund’s costs, like manager fees and other bills. The fund subtracts these costs before calculating the NAV. This makes sure the purchase price shows the true net value of each unit.
When is Purchase Price calculated daily?
The fund calculates the NAV every business day after the stock market closes.
There are no NAVs during the day. The single end-of-day NAV sets the price for all buys and sells for that date.
Step-by-Step Purchase Price Calculation
- The fund finds the right NAV for you. This depends on your order time and when your money arrived.
- It takes out the 0.005% stamp duty from your investment.
- It divides your remaining money by the NAV to find how many units you get. The purchase price for each unit is still the NAV.
Sample Purchase Price Scenarios
- Example 1: You invest ₹1,00,000 in an equity fund. The day’s NAV is ₹50. Stamp duty is ₹5 (₹1,00,000 × 0.00005). Your real investment is ₹99,995. You get 1,999.90 units (99,995 ÷ 50). The purchase price per unit is ₹50.
- Example 2: You place the same order at 3:15 p.m., or your money arrives the next day. Your NAV will be the next business day’s NAV. Your number of units will be different.
Load Structure Impact on Purchase Price
There are no entry loads. The purchase price never includes front-end charges.
Exit loads only matter when you sell. They lower the money you get back. They do not change your entry purchase price.
Front-End Load Effects
In the past, the “offer price” was the NAV plus an entry load. Today, entry loads are gone. The offer price is just the NAV. This made the entry price fair and clear for everyone.
No-Load Fund Purchase Price
For no-load open-ended funds, the purchase price is always the NAV. Only the small stamp duty changes how many units you get. This system makes pricing equal for all investors who follow the rules.
Purchase Price vs Other Fund Pricing Terms
In open-ended funds, the NAV is for both buying and selling. When you sell, an exit load lowers the money you get back.
For ETFs, the price you see during the day can be higher or lower than the NAV. This happens because of market buying and selling pressure.
Purchase Price vs Redemption Price Differences
- Purchase Price: The NAV used when the fund gives you units. There is no entry load.
- Redemption Price: The NAV used when you sell units. Your final payout is lower if there is an exit load.
Purchase Price vs Offer Price Terminology
The “offer price” for an open-ended fund is the NAV. This is because there is no entry load to add.
The industry uses “sale price” when you buy. It uses “repurchase price” when you sell. These mean purchase price and redemption price.
Industry Standard Pricing Terms
- Sale/Purchase price: This is the NAV the fund uses to give you new units.
- Repurchase/Redemption price: This is the NAV the fund uses to take back your units, before it takes out any exit load.
Regulatory Purchase Price Requirements
A uniform NAV rule started on February 1, 2021. Your money must be in the fund’s account before the cut-off time. If not, you get the NAV of the next business day. This is the law.
The cut-off is 3:00 p.m. for most funds. It is 1:30 p.m. for liquid and overnight funds.
Historical Purchase Price Trends
The purchase price (NAV) changes every day with the market. You must expect this.
Debt fund NAVs change very little each day. Equity fund NAVs react strongly to the stock market.
Purchase Price Volatility Factors
- Equity funds: Company news, profits, and stock market moves all change the NAV.
- Debt funds: Shifts in interest rates and bond credit quality change the NAV. The NAV is calculated only once a day. You see these changes as a single jump each day.
Market Conditions Affecting Purchase Price
Big economic news and government decisions change asset prices. This changes the NAV.
With ETFs, market liquidity problems can make the market price different from the NAV for a short time.
FAQ
What factors determine mutual fund Purchase Price?
Two things decide the purchase price: the day’s NAV and your money reaching the fund’s bank account before the cut-off. Stamp duty only reduces the number of units you get. It does not change the NAV price per unit.
How often does Purchase Price change in mutual funds?
It changes once every business day. The purchase price is the new end-of-day NAV. Open-ended funds do not have prices that change during the day.
Can Purchase Price be negotiated with fund companies?
No. A formula sets the purchase price (NAV). It is the same for every investor under the same conditions. You can never negotiate it.
Why does Purchase Price include or exclude loads?
There are no entry loads. The purchase price is just the NAV. Exit loads are separate. They only apply when you sell.
What happens to Purchase Price during market holidays?
An order you place on a holiday is processed on the next business day. The NAV you get depends on that day’s rules, your order time, and when your money arrives.
