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Sept 21 Q-8 iii)

A

Actuary@22

Very Active Member
Hi
Could you please explain what this exactly means in the examiner's report for Q-8 iii) under Rounding heading-

So any change would only affect the offer price, which would reduce slightly [½]
but unlikely to mitigate any increase from the initial charge increase [½]
other than for funds with low prices

Thanks!
 
Hi
Prior to the change, initial charge is 2.5%, both offer and bid prices are rounded up to 3dp.
Proposal is to increase initial charge to 3%, amending the rounding of offer and bid prices in favour of the customer.

Rounding in favour of the customer means: rounding offer price down (so customer pays less to buy a unit) and rounding bid price up (so customer receives more on redeeming units).

So the rounding change only affects the offer price (bid prices will continue to be rounded up as they are already). The initial charge only affects the offer price too (ie the price at which customer initially buys the unit).

In terms of the two impacts on the offer price, increasing the initial charge by 0.5% is likely to have a bigger negative than the (positive) impact of the rounding (which will only affect the 3rd dp of the unit price).

Hope this helps
Lynn
 
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