A mutual fund order placed at midday does not execute at a midday price. The fund computes one price per day after markets close, and every order received that day transacts at it.
Net asset value is an arithmetic result
A fund's net asset value is the market value of everything it holds, less its liabilities, divided by shares outstanding. The calculation happens once, typically shortly after the American market close.
Because the number is derived from portfolio holdings rather than from bids and offers, there is no separate market in the fund's shares. The fund itself issues and redeems at that computed figure.
Accrued expenses, including the management fee, are subtracted daily as liabilities. Fees therefore reduce the reported price rather than appearing as a separate charge.
Forward pricing prevents trading on stale numbers
Regulation requires that orders receive the next calculated price rather than the last published one. An investor cannot see today's closing value and then decide to buy at it.
Orders received before the fund's cutoff get that day's price; orders after it get the following day's. The cutoff is a fixed time, not a queue position.
This rule exists to protect existing shareholders. Allowing purchases at a known past price would let a buyer capture value that belongs to the people already invested.
Fair value pricing handles markets that closed earlier
A fund holding foreign equities faces a timing gap: those markets closed hours before the American calculation. Using the last local closing prices would embed information that is already out of date.
Funds may therefore apply fair value adjustments, estimating what those securities would be worth at the moment the fund prices. The estimates follow board-approved procedures rather than ad hoc judgment.
The adjustment reduces the opportunity to exploit predictable movement between a foreign close and the domestic one.
Creation and redemption happen with the fund itself
Buying shares hands cash to the fund, which issues new shares. Redeeming returns shares to the fund, which pays cash and may sell holdings to raise it.
Because the fund transacts directly, the share count changes constantly and there is no supply of shares fixed in advance. That is the structural difference from a company's stock.
Redemptions that force selling can create taxable gains distributed to remaining shareholders, which is why flows affect people who did not trade.
Exchange traded funds solve the timing differently
An exchange traded fund holds a similar portfolio but its shares trade throughout the session at prices set by buyers and sellers. Those prices can sit above or below the underlying value.
A separate mechanism, in which large institutions exchange baskets of securities for fund shares, keeps the traded price tethered to the portfolio. The daily strike is replaced by continuous arbitrage.
Both structures reach the same destination through different plumbing, and the choice between them is mostly a question of how and when an investor needs to transact.