13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing

Canadian Securities Course CSC

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1 Introduction & Exam Overview

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2 Chapter 1: The Canadian Investment Marketplace

1.1 The Canadian Securities Industry & the Investment Dealer's Role 1.2 Financial Intermediaries: Banks, Trusts, Credit Unions, Insurers & Pension Funds 1.3 Financial Market Trends 1.4 Investment Capital, Financial Instruments & Financial Markets 1.5 Canadian Exchanges, ATSs, Dark Pools & the Order Protection Rule 1.6 Canadian Securities Regulators, the CSA & CIRO 1.7 Investor Protection: OSFI, CIPF and CDIC 1.8 Ethics, Standards of Conduct & the Client Focused Reforms 1.9 Conflicts of Interest, Complaint Handling & Remediation

3 Chapter 2: The Economy

2.1 Economics Foundations & Measuring Economic Growth 2.2 The Business Cycle & Economic Indicators 2.3 Inflation & Interest Rates 2.4 The Labour Market & Unemployment 2.5 The Bank of Canada & the Inflation-Control Target 2.6 Implementing Monetary Policy: The Operating Band, Market Operations & Transmission 2.7 Fiscal Policy, Deficits & the Challenges of Government Policy 2.8 International Finance & Trade: The Balance of Payments and the Canadian Dollar

4 Chapter 3: Features and Types of Fixed-Income Securities

3.1 The Fixed-Income Marketplace, Bond Terminology & Security 3.2 Protective Covenants, Retirement Provisions & Extendible/Retractable Features 3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs 3.4 Provincial & Municipal Debt and Strip Bonds 3.5 Corporate Bonds, Credit Spreads & Bond Ratings 3.6 Money Market Instruments, Floating-Rate Notes & International Bonds 3.7 Other Fixed-Income Securities & Reading Bond Quotes

5 Chapter 4: Pricing and Trading of Fixed-Income Securities

4.1 Bond Pricing, Price–Yield Relationships & Accrued Interest 4.2 Yield Calculations & Return Measures 4.3 The Term Structure of Interest Rates & Yield Curve Theories 4.4 Fundamental Bond Pricing Properties: Volatility Rules, Duration & Convexity 4.5 Bond Market Trading & Bond Indexes

6 Chapter 5: Common and Preferred Shares

5.1 Common Shares: Ownership Rights, Voting & Restricted Shares 5.2 Dividends, DRIPs, Stock Splits & Consolidations 5.3 Preferred Shares: Features, Cumulative Dividends & Taxation 5.4 Preferred Share Variations: Convertible, Callable, Retractable, Floating & Rate-Reset 5.5 Fundamental Equity Metrics & Ratios 5.6 Stock Indexes & Averages

7 Chapter 6: Equity Transactions

6.1 Order Types, Execution & Market Mechanics 6.2 Margin Trading: Long Accounts & Borrowing 6.3 Short Selling & Short-Margin Requirements 6.4 Trading & Settlement Procedures: T+1, CDS & Confirmations

8 Chapter 7: Derivatives

7.1 Derivatives: Role, Underlying Assets & Users 7.2 Options Fundamentals: Calls, Puts & Moneyness 7.3 Option Strategies & Risk Management 7.4 Forward & Futures Contracts 7.5 Rights & Warrants

9 Chapter 8: Corporations and their Financial Statements

8.1 Corporate Structures & Corporate Governance 8.2 The Annual Report, Accounting Standards & the Auditor's Report 8.3 The Balance Sheet & Income Statement 8.4 The Cash Flow Statement & Earnings Quality 8.5 Public Company Disclosure, Investor Rights, Take-Over Bids & Insider Trading

10 Chapter 9: Financing and Listing Securities

9.1 Government & Corporate Financing: Underwriting and Syndicates 9.2 The Prospectus Process, Stabilization & Purchaser Rights 9.3 The Exempt Market & Private Placements 9.4 The Listing Process: TSX, TSXV & Capital Pool Companies 9.5 Continuous Disclosure, Material Changes & Insider Reporting

11 Chapter 10: Investment Analysis

10.1 Methods of Equity Analysis & Macroeconomic Analysis 10.2 Fundamental Industry Analysis 10.3 Company Analysis: Competitive Advantages, Governance & the Dividend Discount Model 10.4 Discounted Cash Flow & Relative Valuation Multiples 10.5 Financial Statement Ratio Analysis 10.6 Assessing Preferred Share Investment Quality 10.7 Technical Analysis: Charts, Trends & Patterns 10.8 Technical Indicators, Volume, Breadth & Sentiment

12 Chapter 11: Portfolio Analysis

11.1 Measuring Investment Return 11.2 Measuring Risk: Types of Risk, Standard Deviation & Downside Measures 11.3 Portfolio Risk & Return: Correlation and Diversification 11.4 Beta, the Capital Asset Pricing Model & the Security Market Line 11.5 Portfolio Manager Styles: Equity & Fixed Income 11.6 The Portfolio Management Process: Objectives, Constraints & the IPS 11.7 Asset Mix, Monitoring, Performance Evaluation & Rebalancing

13 Chapter 12: Alternative Investments, Other Managed, and Structured Products

12.1 Alternative Investments: Structures, Fees & Liquid Alternatives 12.2 Alternative Strategies, Performance Measurement & Due Diligence 12.3 Segregated Funds, Labour-Sponsored Funds & Listed Private Equity 12.4 Income Trusts, REITs & Closed-End Funds 12.5 Structured Products: PPNs & Market-Linked GICs 12.6 Split Shares & Asset-Backed Securities

14 Chapter 13: Mutual Funds

13.1 Managed Products & Mutual Fund Structure 13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing 13.3 Mutual Fund Fees, Sales Charges & Unit Series 13.4 Mutual Fund Regulation, Fund Facts & Account Opening 13.5 Types of Mutual Funds & Fund Management Styles 13.6 Redemptions, Withdrawal Plans & Measuring Fund Performance

15 Chapter 14: Exchange-Traded Funds (ETFs)

14.1 ETF Origins, Structure, Tax Efficiency & ETF Facts 14.2 ETF Creation, Redemption & Arbitrage 14.3 Types of ETFs & Advanced Strategies 14.4 Comparing ETFs, Mutual Funds & Individual Securities

16 Chapter 15: Working with the Institutional Client

15.1 The Institutional Marketplace & Institutional Clients 15.2 Institutional Investment Guidelines, Styles & Restrictions 15.3 Buy Side & Sell Side: Trading Desks, Revenue, Clearing & Best Execution 15.4 Block Trading, Dark Pools & Algorithmic Trading

17 Chapter 16: Fee-Based Accounts and Working with the Retail Client

16.1 Fee-Based Accounts: Managed & Non-Managed Models 16.2 Fee Transparency, CRM2 & Total Cost Reporting, and MWRR vs. TWRR 16.3 The Financial Planning Approach & the Life Cycle 16.4 Behavioral Finance, Sequence-of-Returns Risk & Client Coaching 16.5 Estate Planning Basics

18 Chapter 17: Canadian Taxation

17.1 The Canadian Taxation System 17.2 Taxation of Investment Income 17.3 Capital Gains, Losses & The Superficial Loss Rule 17.4 Registered vs Non-Registered Tax-Advantaged Accounts 17.5 Tax Planning Strategies, Pension Plans & the RDSP

13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing

Key Takeaways Explain This Topic AI

NAVPS = (total assets − total liabilities) ÷ units outstanding.

Issuing or redeeming units at NAVPS does not change the NAVPS of the remaining units.

Under forward pricing, orders received before the daily cut-off (usually 4:00 p.m. ET) get that day's NAVPS; later orders get the next day's.

Forward pricing prevents investors from trading at stale prices to exploit news after the close.

Last updated: October 2026

Because mutual fund units are bought from and sold back to the fund itself, their price comes from the value of the portfolio rather than from trading on an exchange. This section shows how net asset value per unit is calculated, how purchases and redemptions affect it, and why orders are filled at the next calculated price.

1. Pricing Mechanics: Net Asset Value Per Share (NAVPS)

Because open-end mutual funds issue and redeem units directly with the public, the transaction price is anchored strictly to the underlying intrinsic value of the portfolio. This fundamental metric is known as the Net Asset Value Per Share (NAVPS) or Net Asset Value Per Unit (NAVPU) .

The NAVPS Mathematical Formula

NAVPS = Total Portfolio Assets − Total Fund Liabilities Total Number of Units Outstanding \text{NAVPS} = \frac{\text{Total Portfolio Assets} - \text{Total Fund Liabilities}}{\text{Total Number of Units Outstanding}} NAVPS = Total Number of Units Outstanding Total Portfolio Assets − Total Fund Liabilities

Where:

Total Portfolio Assets equals: Total Assets = Market Value of Securities + Cash and Equivalents + Dividends/Interest Receivable \text{Total Assets} = \text{Market Value of Securities} + \text{Cash and Equivalents} + \text{Dividends/Interest Receivable} Total Assets = Market Value of Securities + Cash and Equivalents + Dividends/Interest Receivable

Total Fund Liabilities equals: Total Liabilities = Accrued Management Fees + Accrued Operating Costs + Unsettled Security Trades + Taxes Payable \text{Total Liabilities} = \text{Accrued Management Fees} + \text{Accrued Operating Costs} + \text{Unsettled Security Trades} + \text{Taxes Payable} Total Liabilities = Accrued Management Fees + Accrued Operating Costs + Unsettled Security Trades + Taxes Payable Net Asset Value Per Share (NAVPS) Accounting Framework:

+───────────────────────────────────────────────────────────+
│ TOTAL ASSETS │
│ • Secondary Market Value of Securities Portfolio │
│ • Cash balances & Short-term Money Market instruments │
│ • Accrued Interest on bonds (earned but unpaid) │
│ • Dividends Receivable (shares trading ex-dividend) │
+───────────────────────────────────────────────────────────+
─
+───────────────────────────────────────────────────────────+
│ TOTAL LIABILITIES │
│ • Accrued Management Fees payable to IFM │
│ • Accrued Audit, Custody, Legal & Transfer Agency fees │
│ • Harmonized Sales Tax (HST) payable │
│ • Amounts payable for unsettled portfolio trades │
+───────────────────────────────────────────────────────────+
║
+───────────────────────────────────────────────────────────+
│ NET ASSET VALUE │
│ (Net Fund Equity) │
+───────────────────────────────────────────────────────────+
÷
[ Total Number of Outstanding Units Held by All Investors ]
║
+───────────────────────────────────────────────────────────+
│ NET ASSET VALUE PER SHARE (NAVPS) │
+───────────────────────────────────────────────────────────+
Comprehensive Worked Numeric Calculation: Daily Valuation & Capital Flows

To see how asset price fluctuations and unitholder transactions impact the fund's capital base, consider the following multi-stage scenario for the Maple Leaf Canadian Equity Fund :

Stage 1: Establishing Baseline Closing NAVPS (Day 1)

At the close of trading on Monday, the fund's accounting records reveal:

Market value of equity portfolio: $382,500,000
Cash and short-term T-bills: $14,200,000
Accrued dividends receivable: $1,300,000
Total accrued management, custodial, and audit liabilities: $3,000,000
Total units currently outstanding: 20,000,000 units

Total Assets = $ 382 , 500 , 000 + $ 14 , 200 , 000 + $ 1 , 300 , 000 = $ 398 , 000 , 000 \text{Total Assets} = \$382,500,000 + \$14,200,000 + \$1,300,000 = \$398,000,000 Total Assets = $382 , 500 , 000 + $14 , 200 , 000 + $1 , 300 , 000 = $398 , 000 , 000 Net Asset Value (NAV) = $ 398 , 000 , 000 − $ 3 , 000 , 000 = $ 395 , 000 , 000 \text{Net Asset Value (NAV)} = \$398,000,000 - \$3,000,000 = \$395,000,000 Net Asset Value (NAV) = $398 , 000 , 000 − $3 , 000 , 000 = $395 , 000 , 000 NAVPS = $ 395 , 000 , 000 20 , 000 , 000 units = $ 19.7500 \text{NAVPS} = \frac{\$395,000,000}{20,000,000 \text{ units}} = \$19.7500 NAVPS = 20 , 000 , 000 units $395 , 000 , 000 = $19.7500

The calculated NAVPS for Monday is $19.75 .

Stage 2: Processing Investor Subscriptions and Redemptions (Day 2 Morning)

During Tuesday, the transfer agent receives:

New purchase orders (subscriptions): $3,950,000
Redemption orders: $1,975,000

Because these orders are executed at Monday's closing NAVPS of $19.75:

New units created: $3,950,000 / $19.75 = +200,000 units
Units redeemed and cancelled: $1,975,000 / $19.75 = -100,000 units
Net change in units: + 100 , 000 units +100,000 \text{ units} + 100 , 000 units

New total outstanding units: 20 , 000 , 000 + 100 , 000 = 20 , 100 , 000 units 20,000,000 + 100,000 = 20,100,000 \text{ units} 20 , 000 , 000 + 100 , 000 = 20 , 100 , 000 units

Net cash inflow added to fund: $3,950,000 - $1,975,000 = +$1,975,000

Notice that issuing or redeeming units at NAVPS does not alter the NAVPS itself . The fund's net assets increase by $1,975,000 (from $395,000,000 to $396,975,000), and units increase proportionally to 20,100,000:

$ 396 , 975 , 000 20 , 100 , 000 units = $ 19.7500 \frac{\$396,975,000}{20,100,000 \text{ units}} = \$19.7500 20 , 100 , 000 units $396 , 975 , 000 = $19.7500

Stage 3: Secondary Market Revaluation at Tuesday Close

Throughout Tuesday, the Canadian equity markets surge, while daily management fees accrue:

Market value of equity portfolio rises to: $391,400,000
Cash balance (including net inflows from Day 2): $16,175,000
Accrued receivables: $1,325,000
Accrued liabilities (including daily fee accruals): $3,030,000
Outstanding units: 20,100,000 units

New Total Assets = $ 391 , 400 , 000 + $ 16 , 175 , 000 + $ 1 , 325 , 000 = $ 408 , 900 , 000 \text{New Total Assets} = \$391,400,000 + \$16,175,000 + \$1,325,000 = \$408,900,000 New Total Assets = $391 , 400 , 000 + $16 , 175 , 000 + $1 , 325 , 000 = $408 , 900 , 000 New Net Asset Value = $ 408 , 900 , 000 − $ 3 , 030 , 000 = $ 405 , 870 , 000 \text{New Net Asset Value} = \$408,900,000 - \$3,030,000 = \$405,870,000 New Net Asset Value = $408 , 900 , 000 − $3 , 030 , 000 = $405 , 870 , 000 Tuesday NAVPS = $ 405 , 870 , 000 20 , 100 , 000 units = $ 20.1925 ≈ $ 20.19 \text{Tuesday NAVPS} = \frac{\$405,870,000}{20,100,000 \text{ units}} = \$20.1925 \approx \$20.19 Tuesday NAVPS = 20 , 100 , 000 units $405 , 870 , 000 = $20.1925 ≈ $20.19

The fund's NAVPS rose from $19.75 to $20.19 (+2.23%), directly reflecting the secondary market capital appreciation of the underlying stock holdings.

2. The Forward Pricing Rule and Valuation Timing

A critical regulatory standard governing Canadian mutual funds is the Forward Pricing Rule . The Canadian Forward Pricing Timeline:

Trading Day Begins Daily Valuation Cut-off TSX Closes & NAVPS Calculated
9:30 AM ET 4:00 PM ET 4:00 PM ET
├──────────────────────────────────┼──────────────────────────────────────┤
│ │ │
Orders placed here receive Orders placed here receive NAVPS calculated using
TODAY'S closing NAVPS TOMORROW'S closing NAVPS official 4:00 PM prices
(Price unknown at order entry) (Price unknown at order entry) (Published in evening)
Core Mechanics of Forward Pricing

Under Canadian securities law, investors do not trade mutual fund units at a known, historical, or "stale" price. Instead, all purchase and redemption orders are transacted at an unknown future price determined at the next valuation calculation:

The Daily Valuation Cut-Off Time: For the vast majority of Canadian mutual funds, the daily valuation cut-off time is set at 4:00 PM Eastern Time (ET) , exactly synchronizing with the closing bell of the Toronto Stock Exchange.

Orders Received Prior to 4:00 PM ET: If an investor's purchase, redemption, or switch order is received by the fund's distributor and recorded before the 4:00 PM ET cut-off, the order is processed at the NAVPS calculated at the 4:00 PM ET close of that same business day .

Orders Received After 4:00 PM ET: If an order is submitted at 4:01 PM ET or later, or over the weekend, the order is stamped for the following business day and processed at the closing NAVPS calculated at 4:00 PM ET on that subsequent business day .

Regulatory Rationale: Eliminating Stale-Price Arbitrage

The forward pricing rule is a foundational investor protection safeguard designed to prevent market timing and late trading arbitrage :

In the absence of forward pricing, an opportunistic trader monitoring European or Asian market rallies, or reacting to breaking corporate news after 4:00 PM, could place an order at a "stale" prior-day NAVPS, locking in riskless profits at the expense of existing unitholders.

By executing orders strictly at the next forward NAVPS—which cannot be known when the trade ticket is entered—the rule ensures complete equity among all participants and prevents dilution of long-term unitholders' wealth.