Exam math
Mutual fund pricing: NAV, offering price and sales charges
Enter a NAV and a sales charge: the calculator gives the offering price, the charge per share and the shares an amount buys.
Mutual fund offering price
Public offering price
$21.05
| Charge per share | $1.05 |
| Charge as share of NAV | 5.26% |
| Shares bought | 475.000 |
The sales charge is a percentage of the offering price, not of the NAV: POP = NAV / (1 - sales charge).
Mutual fund pricing is the core arithmetic of the Series 6 and appears on the Series 7 and the SIE as well. A fund's net asset value per share is its assets minus its liabilities, divided by the shares outstanding, and it is computed after the market closes each business day. An investor buying Class A shares pays the public offering price, which is the NAV plus a front-end sales charge. The charge is expressed as a percentage of the offering price, not of the NAV, so the offering price is the NAV divided by one minus the charge: a NAV of $19 with a 5% charge gives $20.00. The other way round, a NAV of $18.60 and an offering price of $20 mean a charge of 7.00%. FINRA Rule 2341 caps the total sales charge at 8.5% of the offering price (Rule 2341), and the cap falls to 7.25% for a fund that offers neither breakpoints nor rights of accumulation. Purchases are made at the next price computed after the order arrives, never at a past price.
Sales charge from NAV and offering price
Sales charge
7.00%
| Charge per share | $1.40 |
| Formula | (POP - NAV) / POP |
FINRA Rule 2341 caps the sales charge at 8.5% of the offering price, less when the fund offers no breakpoints or rights of accumulation.
Questions, formats and fees by Radif Partners · Editorial policy · Method
From NAV to offering price
| NAV | Sales charge | Offering price | Charge per share | Charge as % of NAV |
|---|---|---|---|---|
| $19.00 | 5.00% | $20.00 | $1.00 | 5.26% |
| $19.00 | 3.50% | $19.69 | $0.69 | 3.63% |
| $25.00 | 5.75% | $26.53 | $1.53 | 6.10% |
| $10.00 | 2.00% | $10.20 | $0.20 | 2.04% |
That last column is a classic trap. A 5% sales charge on the offering price equals 5.26% of the money that ends up invested. Exams state the charge as a percentage of the offering price, as Rule 2341 does.
The caps of Rule 2341
| Fund features | Maximum sales charge |
|---|---|
| Breakpoints and rights of accumulation offered | 8.5% of the offering price |
| No rights of accumulation | 8% |
| No breakpoints, rights of accumulation offered | 7.75% |
| Neither breakpoints nor rights of accumulation | 7.25% |
| Fund paying a service fee | 7.25% |
Ways a customer reaches a lower charge
- Breakpoints: a lower percentage from a set purchase amount.
- Rights of accumulation: past purchases and the current value of holdings in the same fund family count towards the next breakpoint.
- Letter of intent: the customer states an amount to invest over a period, usually 13 months, and gets the breakpoint at once; shares are held in escrow in case the amount is not reached.
The Series 6 outline places these in its investments and recommendations function, the heaviest with 25 of 50 scored questions (Series 6 outline). The SIE asks about investment company structure and the meaning of NAV in its products section (SIE outline).
Redemptions
A shareholder who sells shares back to the fund receives the next computed NAV, minus any redemption fee or deferred sales charge. The fund must pay within seven days of receiving the request. Exchanges within the same fund family are usually made at NAV without a new sales charge, but they are taxable events: selling one fund to buy another realises a gain or loss.
Practice next
The Series 6 page has a practice quiz on the whole outline and the Series 6 mock exam runs the full 50 questions under time. For the tax side of fixed income, see municipal bond math.
Share classes compared
Class A shares carry the front-end charge described above and usually lower yearly expenses, with breakpoints that reward larger purchases. Class B shares, now rare, have no front-end charge but a deferred sales charge that declines over several years, and often convert to Class A later. Class C shares have a small or no front-end charge, a short deferred charge and higher yearly 12b-1 fees for as long as they are held. The exams ask which class suits a customer: large amounts and long holding periods point to Class A, short horizons to Class C.
Whatever the class, the customer must receive the prospectus, which sets out the charges, and the representative must check that the class fits the amount and the horizon; recommending a class only because it pays more is a suitability problem.