How do mutual funds determine their NAV at the close of each business day?

Comments

• msf

  February 20

  Regarding a fund's holdings, it looks like you're referring to 17 CFR § 270.2a-4(a)(2)
  https://www.ecfr.gov/current/title-17/part-270/section-270.2a-4#p-270.2a-4(a)(2)

  Changes in holdings of portfolio securities shall be reflected no later than in the first calculation on the first business day following the trade date.

  Emphasis added.
  
  With respect to the price used, it isn't necessarily the current day's closing price. For example, some funds price more than once daily. The Fidelity sector funds used to price hourly, and several Rydex funds (owned by Guggenheim) still price twice daily.
  
  https://www.planadviser.com/print-page/?url=https://www.planadviser.com/rydex-expands-offering-of-twice-a-day-fund-pricing/&cid=39311
  
  The 10:45 AM price on a Tuesday couldn't be based on Tuesday's close because that's in the future. And if it were based on the prior close, that would be tantamount to letting investors trade on stale prices (see 2003 mutual fund trading scandal for why this is verboten).
  
  Typically funds pick "market close" as the time to value their shares, but it can be any fixed time. See 17 CFR § 270.22c-1(b)(1).

  The current net asset value of any such security shall be computed no less frequently than once daily, Monday through Friday, at the specific time or times during the day that the board of directors of the investment company sets, in accordance with paragraph (d) of this section

  https://www.ecfr.gov/current/title-17/part-270/section-270.22c-1#p-270.22c-1(b)(1)
• JD_co

  February 20

  I was a Mutual Fund accountant many, many moons ago. Worked for a few different firms. They would price all securities using a feed just after the stock market's daily close (4PM ET). For any equities that moved > 5% from prior day close, you had to confirm that closing price at a Bloomberg terminal on-site.
  
  For any bonds that were thinly traded, you could call down to a specific trading desk.
  
  The holdings were adjusted for that day's trades that were made by the Portfolio Manager.
  
  It was all very rushed and hectic, but maybe now it's more streamlined. At one point I handled an Intl Equities fund, and I received trades from London location via a Fax machine. It was less than ideal.
  
  I have some stories, but they are boring. Or just better not to know.
• WABAC

  February 20

  JD_co said:

  I was a Mutual Fund accountant many, many moons ago. Worked for a few different firms. They would price all securities using a feed just after the stock market's daily close (4PM ET). For any equities that moved > 5% from prior day close, you had to confirm that closing price at a Bloomberg terminal on-site.
  
  For any bonds that were thinly traded, you could call down to a specific trading desk.
  
  The holdings were adjusted for that day's trades that were made by the Portfolio Manager.
  
  It was all very rushed and hectic, but maybe now it's more streamlined. At one point I handled an Intl Equities fund, and I received trades from London location via a Fax machine. It was less than ideal.
  
  I have some stories, but they are boring. Or just better not to know.

  I love old fax machine stories. Did you have to call their fax from your fax and coordinate placing the phones into the cups at the same time?
• JD_co

  February 20 edited February 20

  
  
  I love old fax machine stories. Did you have to call their fax from your fax and coordinate placing the phones into the cups at the same time?

  I am not familiar with that "cup" process. Or maybe you are joking. But I had to dial in a specific code to have the fax print out the cache.
  
  The early 1990's seem very, very distant now. We were changing over from green colored Accounting Ledger pads to clunky computer terminals with very limited capabilities. It might as well have been the Dark Ages.
  
  The words "NAV error" were not something you ever wanted to hear as a MF Accountant, or be associated with. But it happens a lot, trust me - especially with funds that held derivatives.
  
  
• WABAC

  February 20

  No. Not joking. They ran at 300 baud. Even wikipedia doesn't have a picture of them.
  
  When I first started at the company we were still using a specialized Cardex filing system to keep track of some data. One day the boss walked in and said "Why are we still doing this when we have dBase III?"
  
  I also ran a BBS for tech-sabe folks that knew how to handle the files we made available.
  
  Yeah. It was the dark ages. I remember being excited about getting an amber monitor.
  
  
• JD_co

  February 20 edited February 20

  I guess if you can remember dot matrix printers, you are considered old. And LOTUS 1-2-3. Fortran & Basic. Commodore 64s and Sinclair computers.
  
  Amazingly, Mutual funds predate all that good stuff. The first open-end MF with redeemable shares was created in 1924. No Reuters pricing feeds back then.
• msf

  February 20

  “I don't know what the language of the year 2000 will look like, but I know it will be called Fortran.” —Tony Hoare, winner of the 1980 Turing Award, in 1982.
  
  Scientific computing’s future: Can any coding language top a 1950s behemoth?
  https://arstechnica.com/science/2014/05/scientific-computings-future-can-any-coding-language-top-a-1950s-behemoth/
  
  That's from just 10 years ago. You don't have to be old to be familiar with Fortran. You just have to be in the right field of work.
• Vegomatic

  February 21

  Thank you (especially! msf) for responses.