Unit pricing

[Frances]

Hi there,

I am looking to understand why, when we calculate the appropriation price, we add on the expenses and any duty that would be incurred in the purchase of the assets held by the unit fund. Is this just effectively a charge to the policyholder for this? I'm not sure why we wouldn't subtract this off, as it is a cost so should decrease the net asset value of the fund.

Also, I don't understand why the appropriation/expropriation price would be equal to the bid price. Can someone also explain this to me please?

Thanks,
Fran

 

[Mark Willder]

Hi there,

I am looking to understand why, when we calculate the appropriation price, we add on the expenses and any duty that would be incurred in the purchase of the assets held by the unit fund. Is this just effectively a charge to the policyholder for this? I'm not sure why we wouldn't subtract this off, as it is a cost so should decrease the net asset value of the fund.


Thanks,
Fran

Hi Fran

With the appropriation price we have an expanding fund. So we need to charge the new policyholders to create the new units. To do this we need to charge them for the assets we need to buy and charge them for the transaction costs and taxes we need to pay.

Best wishes

Mark

 

[Mark Willder]

Hi there,

Also, I don't understand why the appropriation/expropriation price would be equal to the bid price. Can someone also explain this to me please?

Thanks,
Fran

Hi Fran

All calculations performed on the unit fund are performed at the bid price (eg on maturity the policyholder gets the bid value of their units).

If we are adding to the fund (eg premiums) we need to create units so that the policyholder's bid value goes up.

If we are deducting from the fund (eg charges) we need to destroy units so that the policyholder's bid value goes down.

The offer price of units is just a way to take a charge from policyholders, so that they get fewer units (and lower bid value of units). This charge is taken immediately and placed in the non-unit fund. Only the bid value goes into the unit fund.

I hope this helps.

Mark

 

[kimiko]

Hi Fran

With the appropriation price we have an expanding fund. So we need to charge the new policyholders to create the new units. To do this we need to charge them for the assets we need to buy and charge them for the transaction costs and taxes we need to pay.

Best wishes

Mark

Hi Mark, is this also why appropriation price is always higher than the expropriation price? Not sure if this is actually true.

 

[Mark Willder]

Hi Mark, is this also why appropriation price is always higher than the expropriation price? Not sure if this is actually true.

Hi Kimiko

Yes the appropriation price is always bigger than the expropriation price.

The appropriation price adds the transaction costs but the expropriation price subtracts them.

Also the appropriation price is based on the offer value of the assets in the market. The expropriation price is based on the lower bid value of assets in the market.

Best wishes

Mark