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FORWARD PRICING - WHAT DOES IT MEAN?

The unit trust industry is not immune to technical jargon. Compliance Officer FAIEKA SLEMMING explains the forward pricing disclosures in simple English.

Let’s start by looking at an excerpt from the standard terms and conditions which can be found in the small print on all Foord fact sheets: “Unit trust prices are calculated on a net asset value basis, which is the total value of all assets in the portfolio including any income accruals and less any permissible deductions from the portfolio. Forward pricing is used. Prices are determined at 15h00 each business day and are published daily on www.foord.co.za and in national newspapers. The cut-off time for instruction is 14h00 each business day.”

WHAT DOES IT MEAN?

Unit trusts are priced once each business day at the time listed in the unit trust scheme’s deed. Foord’s unit trusts are priced at 3pm. This is a common industry pricing time as it allows platform and other institutional investors to download prices for downstream pricing of their investments and reporting to their investors.

Forward pricing is the practice of calculating the price only after the cut-off time for transactions, meaning that investors do not know the price when giving an investment instruction — an essential practice to avoid price manipulation. Foord’s cut-off time is 2pm for processing at the forward price calculated an hour later. Valid instructions received after this cut-off time are processed at the forward 3pm price on the next business day.

Because the price is struck after the cut-off time, it is not possible to know in advance how many units will be received for an invested rand lumpsum. Neither can we know what the redemption value will be for a given number of units until after the price is calculated.

The net asset value is the market value of the fund’s investments at 3pm, plus accrued income and less a provision for allowed expenses. The price is calculated by dividing the net asset value by the number of units in issue that day.

Accrued income is income such as interest and dividends that are earned but not yet received. Legislation restricts costs that may be deducted from the portfolio assets. The only permissible deductions are: the manager’s service charge; levies and taxes; fees payable to auditors, custodians and trustees; and bank charges and costs incurred in settling investment transactions such as broker fees, market settlement charges and related taxes. These costs are included in the TERs (total expense ratios) published in the monthly factsheets.

The number of units in issue fluctuates daily. When an investor purchases Foord unit trusts, units are created, while units are cancelled when an investor redeems units. The number of units created or cancelled is based on the price per unit calculated on the transaction day at the forward price.

The daily A class prices of Foord unit trusts are published on our website www.foord.co.za and in national newspapers.

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