Warning – Understand Cut-Off Times When Buying Mutual Funds

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A lot of investors in the last week or so have been very disappointed when they tried to buy mutual funds late in the day to capture great bargains, only to find out they didn’t get them. 

Here is what you need to know. Mutual Funds are priced every day at 4PM. You decide that want to buy 100 shares of a mutual fund and you place an order at 3PM, one hour before the market closes. The current price that day, the NAV was down to $100/share, you think you just paid $10,000. However, you check back a few days later and notice that the “buy” price was actually $110/share, 10% higher. How could this happen? Easy, you need to understand the CUT-Off time for both your broker and the actual fund.  

For example, here is the policy on the Ameritrade web site. Trading Cutoff Times “Cut-off times for the purchase and redemption of mutual fund shares can vary from 2 p.m. ET to 4 p.m. ET, and are subject to change at any time. Orders placed after the cut-off time will be processed the following business day” 

So you might place a mutual fund order at 2PM on September 8th, thinking you’ll get the 4PM price that day, however you might actually get the 4PM price on September 9th at 4PM. In the meantime the market has either dropped or rallied substantially. 

Stocks and ETF’s are not like this, they are priced and confirmed within seconds of order execution. Actual Bond are altogether different and much more mysterious.

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