How Funds Operate Behind the Scenes

The price at which a fund or market participant buys units or securities from an investorA person or organisation that commits capital with the expectation of a financial return..

Example: The investor redeems at a bid price of ₦9.85 per unit.

The bid price is what you receive per unit when you redeem from a fund quoted on a dual-price basis. It sits below the offer price, and the gap between them, the spread, is a round-trip cost you pay for entering and exiting.

The naming trips people up, so anchor it: bid is the price at which the fund buys units back from you. You sell at the bid, you buy at the offer, and the bid is always the lower number.

A worked pass through the numbers: a fund quotes bid ₦1.96, offer ₦2.00. You subscribe ₦200,000 and receive 100,000 units. Redeem the same day and you get 100,000 × ₦1.96 = ₦196,000. The ₦4,000 difference is the spread doing its work, and it is why a fund must earn about 2% at these prices before you break even.

Some funds quote a single price with charges shown separately instead. Either way, the prospectusThe formal document explaining a fund's objective, strategy, risks, fees, governance, and dealing rules. discloses the structure, and the practical question is the same: what is the total cost of a round trip.

The deadline by which a valid fund instruction must be received for a particular dealing dayA scheduled day on which a fund accepts and prices valid subscriptions or redemptions..

Example: An order received after noon is processed at the next valuation point.

Dealing Cut-Off Time is the deadline by which a valid fund instruction must be received for a particular dealing day; the fund concept should be read through the fund documents because the prospectus and trust deedThe legal document establishing a trust-based fund and defining the powers and duties of its parties. determine the permitted assets, charges, liquidityThe ease and speed with which an investment can be converted into cash without a major price concession. and investor rights.

An order received after noon is processed at the next valuation point. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

For Dealing Cut-Off Time, check the prospectus, latest fact sheet and transaction confirmation; confirm the mandate, pricing basis, fees, processing time and the roles of the manager, trustee, custodianA licensed institution that safeguards a fund's cash and securities separately from the manager's own assets. or registrarThe service provider that maintains ownership records and processes specified investor entitlements. where relevant. A fund can follow the rules correctly and still deliver a loss when its investments fall.

The price applied to a subscriptionThe process of buying new units in a fund by submitting money and a valid instruction., redemptionThe process of selling fund units back to the fund in exchange for cash., or switch in a fund.

Example: The investor receives units at the dealing price calculated after the cut-off.

Dealing Price is the price applied to a subscription, redemption, or switch in a fund; the practical meaning of the fund concept emerges from the relationship between units, net asset valueThe value of a fund's assets minus its liabilities, usually expressed in total and per unit., subscriptions, redemptions and the fund's stated mandate.

The investor receives units at the dealing price calculated after the cut-off. Check the fund's cut-off time, valuation date, minimum amount and applicable charge are known.

The practical test for Dealing Price is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; convenience does not remove market, credit or liquidity riskThe risk that an asset cannot be sold quickly at a reasonable price or a redemption cannot be met promptly. in the underlying assets.

A separate charge imposed on transactions to offset dealing costs caused by subscriptions or redemptions.

Example: A large redemption attracts a levy reflecting the cost of selling assets.

DilutionA reduction in an existing holder's ownership percentage after new securities are issued. Levy is a separate charge imposed on transactions to offset dealing costs caused by subscriptions or redemptions. The fund concept operates within a fund's legal mandate, dealing rules, valuation process and service-provider structure; the label alone does not determine the investor's actual exposure.

For example, a large redemption attracts a levy reflecting the cost of selling assets. Check the fund's cut-off time, valuation date, minimum amount and applicable charge are known.

For Dilution Levy, check the prospectus, latest fact sheet and transaction confirmation; confirm the mandate, pricing basis, fees, processing time and the roles of the manager, trustee, custodian or registrar where relevant.

A fund-pricing structure using separate buying and selling prices.

Example: The offer price is ₦10.00 while the bid price is ₦9.80.

Dual Pricing is a fund-pricing structure using separate buying and selling prices; the practical meaning of the fund concept emerges from the relationship between units, net asset value, subscriptions, redemptions and the fund's stated mandate.

The offer price is ₦10.00 while the bid price is ₦9.80. The applicable unit price and timing still depend on the fund's dealing rules.

The practical test for Dual Pricing is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; a familiar product name can conceal a materially different portfolioThe complete collection of investments owned by an investor or managed under one mandate. or dealing rule.

An accounting adjustment intended to treat incoming and existing fund investors fairly in relation to accrued income or performance fees.

Example: A new investor does not pay a performance feeA fee linked to returns above a stated threshold or benchmark. on gains earned before joining.

Equalisation is an accounting adjustment intended to treat incoming and existing fund investors fairly in relation to accrued income or performance fees. The fund concept should be read through the fund documents because the prospectus and trust deed determine the permitted assets, charges, liquidity and investor rights.

A new investor does not pay a performance fee on gains earned before joining. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

The practical test for Equalisation is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; a familiar product name can conceal a materially different portfolio or dealing rule.

A fund-pricing method under which orders receive a price calculated after the instruction is accepted.

Example: A subscription submitted at 10 a.m. receives the NAV calculated at market close.

Forward pricing means every subscription and redemption executes at the next price calculated after your order arrives, never at the last published price. Nigerian funds, like most worldwide, operate this way.

The rule exists to protect existing investors. If orders executed at yesterday's published price, anyone could watch today's market, then trade "backwards" at a stale price that no longer reflects the portfolio's value, extracting profit directly from other unitholders. Forward pricing closes the loophole: you commit first, the price is set after.

The practical consequences are two. First, you never know your exact execution price at the moment you order; the published price is your estimate, not your deal. Second, cut-off times matter. Orders received before the fund's daily cut-off get that day's valuation; orders after it roll to the next. Around volatile days, missing a cut-off can change your price meaningfully.

Find the valuation time and cut-off in the prospectus, and place time-sensitive orders early in the day rather than at the wire.

A fund-pricing method using a price calculated before the investor's order is received.

Example: The fund publishes a morning price used for transactions until the next valuation.

Historic Pricing is a fund-pricing method using a price calculated before the investor's order is received; the fund concept should be read through the fund documents because the prospectus and trust deed determine the permitted assets, charges, liquidity and investor rights.

The fund publishes a morning price used for transactions until the next valuation. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

The practical test for Historic Pricing is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; a familiar product name can conceal a materially different portfolio or dealing rule.

The smallest amount an existing investor may add after opening an account.

Example: After the initial purchase, the fund accepts additions from ₦1,000.

Minimum Additional InvestmentAn asset or commitment of money made with the expectation of future income, growth, or both. is the smallest amount an existing investor may add after opening an account; the important mechanics are how money enters or leaves the fund, how units are priced, and which party makes, supervises or records the relevant decision.

After the initial purchase, the fund accepts additions from ₦1,000. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

The practical test for Minimum Additional Investment is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; convenience does not remove market, credit or liquidity risk in the underlying assets.

The smallest balance an investor must retain in a fund account.

Example: A partial redemption must leave at least 1,000 units.

Minimum Holding is the smallest balance an investor must retain in a fund account; the important mechanics are how money enters or leaves the fund, how units are priced, and which party makes, supervises or records the relevant decision.

A partial redemption must leave at least 1,000 units. Check the prospectus for its pricing, settlement and distributionIncome or realised gains paid by a fund to its unitholders. rules.

Use Minimum Holding only after confirming who performs the action, which account or units are affected, when pricing occurs and whether any holding-period restriction applies; convenience does not remove market, credit or liquidity risk in the underlying assets.

The smallest amount required to open an investment in a product.

Example: A fund requires at least ₦5,000 for the first subscription.

Minimum Initial Investment is the smallest amount required to open an investment in a product. The fund concept operates within a fund's legal mandate, dealing rules, valuation process and service-provider structure; the label alone does not determine the investor's actual exposure.

A fund requires at least ₦5,000 for the first subscription. The applicable unit price and timing still depend on the fund's dealing rules.

The practical test for Minimum Initial Investment is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result.

The price at which a fund or market participant sells units or securities to an investor.

Example: A new subscription is processed at an offer price of ₦10.00.

The offer price is what you pay per unit when subscribing to a dual-priced fund. It sits above the bid price, and the difference funds the costs of dealing plus any built-in charge.

Units received = amount invested ÷ offer price, less any separately stated entry loadA charge deducted when an investor subscribes to a fund.. At an offer price of ₦2.00, a ₦500,000 subscription buys 250,000 units. Your investment then breaks even only when the bid price, the price you can exit at, reaches your ₦2.00 entry, which requires the fund to earn back the spread first.

When you check a fund price listA published list of current fund bid, offer, or unit prices., discipline about which column you read prevents small but real errors: estimate subscriptions at the offer, estimate redemptions at the bid, and measure performance from bid to bid or NAV to NAV rather than mixing columns.

The size of the bid-offer spreadThe difference between the price at which units can be sold and the price at which they can be bought. is a legitimate comparison point between funds. A wide spread on a fund you might exit within a year can cost more than a slightly higher management feeThe recurring fee paid from fund assets to the fund manager for managing the portfolio. on a competitor.

A rule limiting how much investors may redeem from a fund during a period.

Example: A fund caps daily redemptions at 10% of NAV during severe market stress.

Redemption Gate is a rule limiting how much investors may redeem from a fund during a period. The fund concept operates within a fund's legal mandate, dealing rules, valuation process and service-provider structure; the label alone does not determine the investor's actual exposure.

For example, a fund caps daily redemptions at 10% of NAV during severe market stress. Check the fund's cut-off time, valuation date, minimum amount and applicable charge are known.

When evaluating Redemption Gate, identify the governing document, the applicable NAV or dealing price, every charge and the time between instruction and settlement; marketing summaries should not override those terms. Operational ease should not be mistaken for a guaranteeA contractual promise by another party to meet an obligation if the primary debtor does not. of return or instant access.

A temporary halt to fund redemptions under exceptional conditions allowed by governing documents.

Example: The fund suspends redemptions because key markets are closed and assets cannot be valued fairly.

Redemption Suspension is a temporary halt to fund redemptions under exceptional conditions allowed by governing documents; the practical meaning of the fund concept emerges from the relationship between units, net asset value, subscriptions, redemptions and the fund's stated mandate.

The fund suspends redemptions because key markets are closed and assets cannot be valued fairly. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

The practical test for Redemption Suspension is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; a familiar product name can conceal a materially different portfolio or dealing rule.

The time between a valid transaction and final delivery of cash or securities.

Example: A redemption paid within three business days has a three-day settlement period.

Settlement Period is the time between a valid transaction and final delivery of cash or securities; the important mechanics are how money enters or leaves the fund, how units are priced, and which party makes, supervises or records the relevant decision.

A redemption paid within three business days has a three-day settlement period. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

For Settlement Period, check the prospectus, latest fact sheet and transaction confirmation; confirm the mandate, pricing basis, fees, processing time and the roles of the manager, trustee, custodian or registrar where relevant. Operational ease should not be mistaken for a guarantee of return or instant access.

A separate account used to isolate illiquid or hard-to-value assets from a fund's liquid portfolio.

Example: A defaulted bond is moved into a side pocket pending recovery.

Side Pocket is a separate account used to isolate illiquid or hard-to-value assets from a fund's liquid portfolio; the important mechanics are how money enters or leaves the fund, how units are priced, and which party makes, supervises or records the relevant decision.

A defaulted bond is moved into a side pocket pending recovery. Check the fund's cut-off time, valuation date, minimum amount and applicable charge are known.

The practical test for Side Pocket is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result.

A fund-pricing structure using one price for both subscriptions and redemptions, subject to any separate charges.

Example: Both buyers and sellers transact at the same NAV-based price.

Single Pricing is a fund-pricing structure using one price for both subscriptions and redemptions, subject to any separate charges; the fund concept should be read through the fund documents because the prospectus and trust deed determine the permitted assets, charges, liquidity and investor rights.

For example, both buyers and sellers transact at the same NAV-based price. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

The practical test for Single Pricing is documentary: the fund's approved documents should state the process, cost, timing and investor consequence clearly enough to reproduce the result; a fund can follow the rules correctly and still deliver a loss when its investments fall.

An adjustment to a fund's dealing price intended to allocate transaction costs to subscribing or redeeming investors.

Example: Heavy redemptions cause the NAV to swing downward so remaining investors do not bear all selling costs.

Swing Pricing is an adjustment to a fund's dealing price intended to allocate transaction costs to subscribing or redeeming investors. The fund concept operates within a fund's legal mandate, dealing rules, valuation process and service-provider structure; the label alone does not determine the investor's actual exposure.

Heavy redemptions cause the NAV to swing downward so remaining investors do not bear all selling costs. Check the fund's cut-off time, valuation date, minimum amount and applicable charge are known.

For Swing Pricing, check the prospectus, latest fact sheet and transaction confirmation; confirm the mandate, pricing basis, fees, processing time and the roles of the manager, trustee, custodian or registrar where relevant. Operational ease should not be mistaken for a guarantee of return or instant access.

The specified time at which a fund values its assets and calculates dealing prices.

Example: The fund values its portfolio at the close of each business dayA day on which relevant financial institutions and markets are open for normal processing..

Valuation Point is the specified time at which a fund values its assets and calculates dealing prices; the fund concept should be read through the fund documents because the prospectus and trust deed determine the permitted assets, charges, liquidity and investor rights.

The fund values its portfolio at the close of each business day. The prospectus determines when the instruction becomes effective and how many units or how much cash results.

When evaluating Valuation Point, identify the governing document, the applicable NAV or dealing price, every charge and the time between instruction and settlement; marketing summaries should not override those terms.