# How mutual fund trading works

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.