Mutual funds pool end-customers' money to buy a diversified portfolio of securities. Each trading day, the vast majority of funds calculate a Net Asset Value (NAV) by valuing its holdings and dividing by the number of outstanding units (certain mutual funds undertake this monthly, e.g. hedge funds). The unit price used for end-customer trades is based on this NAV, which means end-customers do not know the exact price when they place a subscription or redemption order. Orders received before the fund's daily cut-off are executed at the next NAV strike.
Funds are often issued in several share classes. These may differ by currency, allowing end-customers to hold units in their preferred denomination, or by target investor segment, such as retail versus institutional. While share classes have separate prices and/or currencies, they represent proportional claims on the same underlying portfolio.
The mutual fund value chain brings together several specialized actors:
- The distributor offers end-customers various types of investment accounts and ensures that each investor's cash and fund units are correctly record-kept and compliant with regulatory requirements.
- Executing party, a marketplace that connects distributors to thousands of fund companies and handles cross-border order routing and settlement instructions.
- The fund company calculate the NAV, accept or reject orders, and settle the issuance or redemption of fund units.
In this structure, the fund company keeps records only at the distributor level, not at the level of each end-customer. The distributor's own custody and account system maintains the detailed, customer-by-customer ledger of unit holdings. This clear division of responsibility lets the fund companies focus on fund-wide share issuance and NAV calculations, while distributors provide granular client statements and positions.