What Is the Offering Price for a Share of a Mutual Fund?

D

The offering price for a share of a load fund equals the NAV of the share plus a sales charge, which typically is 7.5 to 8.0 percent of the NAV.

The correct answer is D. load fund.

In the context of mutual funds, the offering price refers to the price at which an investor can purchase shares of the fund. This price includes the net asset value (NAV) of the shares plus a sales charge.

A load fund is a type of mutual fund that charges investors a sales commission or fee, known as a load, when they purchase or sell shares. The load can be either upfront or back-end (also known as a deferred sales charge).

In the case of an upfront load, the sales charge is deducted from the investor's initial investment. For example, if the NAV of a load fund share is $10 and the upfront load is 5%, the offering price would be $10 plus 5% of $10, which equals $10.50.

On the other hand, a back-end load is charged when the investor sells the shares. The sales charge is usually a percentage of the NAV at the time of sale or a decreasing percentage over time if the investor holds the shares for a specified period, such as a contingent deferred sales charge (CDSC).

It's important to note that load funds are typically sold through intermediaries, such as brokers or financial advisors, who earn the sales commission. The load compensates these intermediaries for their services and advice in helping investors choose suitable funds.

In contrast, the other options mentioned:

A. Closed-end investment company: These are investment companies that issue a fixed number of shares through an initial public offering (IPO) and trade on stock exchanges. The offering price for a share of a closed-end investment company is determined by supply and demand in the market and is not based on the NAV plus a sales charge.

B. 12b-1 plan fund: A 12b-1 plan fund is a type of mutual fund that charges investors for distribution and marketing expenses. The offering price of a 12b-1 plan fund may include a distribution fee, but it is not directly related to the NAV plus a sales charge.

C. No-load fund: A no-load fund is a type of mutual fund that does not charge a sales load. The offering price of a no-load fund is equal to the NAV of the shares without any additional sales charge.