SIE Ready🧺 Packaged Products · Lesson 2 of 7 · 5 min
NAV, POP and the Next Price Rule
💵 Your customer sends in an order at 11 a.m. and asks, 'What price did I get?' The honest answer is: you don't know yet, and that is the law.
💡 Key idea
Buy at POP, redeem at NAV (minus any deferred charge), always at the next price computed after the order arrives. Sales charge % = (POP − NAV) ÷ POP.
🧠 Why it matters
NAV per share = (fund assets − liabilities) ÷ shares outstanding. It is usually computed once a day after the market closes. The PUBLIC OFFERING PRICE (POP) is NAV plus any front-end sales charge. The sales charge percentage is figured on the POP: (POP − NAV) ÷ POP. Example: NAV $9.40, POP $10.00 → $0.60 ÷ $10.00 = 6%. FINRA Rule 2341 caps total sales charges at 8.5% of the offering price (lower caps apply to funds without certain discounts). FORWARD PRICING (SEC Rule 22c-1): every order gets the NEXT price computed after the fund receives it, never an earlier one. Investors redeem at NAV less any back-end charge, and the fund generally must pay within 7 days (1940 Act Section 22(e)).
📈 In the real world
⏰ Marcus places a mutual fund buy at 2:15 p.m. after watching stocks rally. He hopes to lock in yesterday's lower NAV. His rep explains forward pricing: his order fills at today's NAV, computed after the close. Had he called at 4:30 p.m., after the cutoff, he would get tomorrow's price instead.
📌 Takeaways
- NAV = (assets − liabilities) ÷ shares; POP = NAV + sales charge
- Sales charge % uses POP as the base; FINRA max is 8.5% of the offering price
- Forward pricing: next computed price; redemptions paid within 7 days
📖 Terms in this lesson
Net asset value (NAV): A fund's assets minus liabilities, divided by its shares outstanding.
Public offering price (POP): Net asset value plus any front-end sales charge: the price a buyer pays for a load fund.
Sales charge (load): A commission on fund purchases or redemptions; FINRA caps a mutual fund's sales charges at 8.5% of the offering price.
Forward pricing: Mutual fund orders are filled at the next net asset value calculated after the order is received.
✅ Test yourself
A fund's NAV is $18.80 and its public offering price is $20.00. What is the sales charge percentage?
- 6.0%
- 5.6%
- 6.4%
- 1.2%
Answer: A · 6.0%
Sales charge % = (POP − NAV) ÷ POP = $1.20 ÷ $20.00 = 6.0%. Dividing by NAV instead ($1.20 ÷ $18.80 ≈ 6.4%) is the classic trap; 1.2 is the dollar charge, not a percentage.
Under forward pricing, an order to buy mutual fund shares received at 1 p.m. is filled at which price?
- The average NAV over the past five days
- The prior day's closing NAV plus any load
- The NAV computed after the order is received
- The NAV at the moment the order is entered
Answer: C · The NAV computed after the order is received
SEC Rule 22c-1 requires the next price computed after the fund receives the order, usually that day's after-close NAV plus any load. Using yesterday's price would let investors trade on stale prices, which forward pricing exists to prevent.
Under the Investment Company Act, a mutual fund generally must pay redemption proceeds within how many days?
- 3 business days
- 7 days
- 30 days
- 1 business day
Answer: B · 7 days
Section 22(e) of the 1940 Act generally requires payment within 7 days of receiving a proper redemption request, with narrow exceptions such as an NYSE closure or SEC order. The other periods are not the 1940 Act standard.
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