• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Unit Pricing

R

Rajat gupta

Ton up Member
Hi All,

Can somebody explain if the fund is expanding then the new price (appropriation price) will be greater than/ less than or equal to the unit price before expansion? Do we mean appropriation price as a price that we charge new policyholder for allocation of their units? How appropriation price/expropriation charge helps in securing rights of existing unit holders. I have read how appropriation/ expropriation price is calculated after adjusting for expenses, current assets/liabilities or taxes and unable to relate how this preserves rights of existing unit holders. Can somebody please explain with a help of some numerical example?

Thanks in advance!

Regards,
Rajat
 
Rajat gupta said:
Hi All,

Can somebody explain if the fund is expanding then the new price (appropriation price) will be greater than/ less than or equal to the unit price before expansion? Do we mean appropriation price as a price that we charge new policyholder for allocation of their units? How appropriation price/expropriation charge helps in securing rights of existing unit holders. I have read how appropriation/ expropriation price is calculated after adjusting for expenses, current assets/liabilities or taxes and unable to relate how this preserves rights of existing unit holders. Can somebody please explain with a help of some numerical example?

Thanks in advance!

Regards,
Rajat
Click to expand...

Hello Rajat

When we say that a fund is expanding we mean that there are more policyholders buying units than selling, so we are pricing on an offer basis. This has nothing to do with whether the unit price is increasing or decreasing - the unit price depends on whether the shares/bonds/property that the insurer has bought are going up or down in value.

The appropriation price is the price required to create a new unit when the fund is expanding in order to maintain fairness between policyholders. Consider a fund with assets worth 200 at their offer value and 180 at their bid value. There are 100 units, so the appropriation price is 2 (the expropriation price is 1.8). If the new investors put in new funds of 18, then we give them 9 new units. We then have 218 of assets at the offer value and 109 units, so the price of the units is unchanged at 2 and the policyholders not involved in the transaction have the same amount as before.

If we had instead allocated using the expropriation price then this wouldn't be fair. The new investors would put in 18 and would get 10 new units. However the 18 has been used to buy assets (ie at their offer price) on the stock market, so we have an offer value of assets of 218 but 110 units. So each unit is now worth slightly less than 2 and the policyholders who were not involved in the transaction have suffered a fall in the value of their units.

I hope this numerical example helps.

Best wishes

Mark
 
You must log in or register to reply here.
Back
Top