Millions of mutual fund buyers check their mutual fund nav on a consistent – occasionally daily – basis. For many it is nearly a ritual rite, deciding the current standing of their investments and working out whether or not whether they are still ahead, further behind, or hardly staying even. But are mutual fund nav numbers even accurate?
Obviously, when there are a limited number of holdings, working out the net asset value is much simpler and simpler to do. A mutual fund with a portfolio of 10 or 20 stocks only has to take a look at the end of day price for each stock, see how many shares are held, and do the calculations. Not complicated.
But what about when there are hundreds and hundreds or maybe thousands, of holdings in the mutual fund portfolio? Remember, the mutual fund price is meant to be exactly calculated out on each day based primarily on the value of each holding at the EOB. So the accurate price of each holding – hundreds or thousands of individual investments – must be tabulated and exactingly reported inside of a maddeningly short time period. Each mutual fund has just a few hours to calculate out all these tons of values, total them, and report them by 5 PM each working day.
Here’s where it begins to get interesting, challenging, and presumably perilous for the average mutual fund investor.
First, many investors do not even understand the marketplace for bonds is unbelievably more sizeable than the arena of stocks. However even though it is a big market-place, the reporting just not as thorough or simple to find. How does somebody sell a bond when they work as a a portfolio executive? Regularly you could have a liaison with several bond traders that you can call on the skype and say “Hey, wanna buy some bonds?” They’ll say ‘yes ‘ or ‘no ‘ and then give you the price they are willing to pay. You can call around and get a few bids and judge whether you'll take one of the offers or whether you’ll just forget about selling the bonds (Naturally, there are far more electronic techniques of accomplishing this job these days but the technique is really about the same).
So do you suspect the mutual fund manager has someone call each day to get a specified price on each of hundreds or thousands of bond holdings? Hmmm…
And what about even less liquid holdings like limited partnership shares or shares in closely-held corporations that are not traded on any stock exchange? To get a set value on these holdings you must have an appraisal done which takes a serious quantity of time, not to mention expense. Do you suspect that mutual fund chiefs are having assessments done on each of their less-liquid holdings each working day? No way.
The most important fraud is the issue of what are called “phantom shares” or shares of stock that don39;t even exist. Everyday on each stock exchange, millions of shares of stock trade that don’t even exist. Difficult to believe? Yes, but it’s 100% true and documented. Does your mutual fund own any of these ghost shares? If so , what is the real price?
Put this all together and you just may find that owning 1 or 2 gold coins you can hold in your hand or socking cold, hard cash away in the pillow isn’t such a particularly bad style after all. You depend only on mutual fund ratings anymore. Your mutual fund nav may not be giving you a specific total of what your investment is actually worth.
To get a better idea of the right way to keep a lid on of your investments and find the best mutual funds without staying in front of the computer or watching the cable fiscal channel all day, read more from Barry Jameson on MutualFundNAVx.com and other web sites dedicated to financial stories around the web.
categories: mutual fund nav,mutual fund
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