What formula calculates the purchase price of a fund?

The purchase price of a mutual fund is calculated using the formula that involves the Net Asset Value per Share (NAVPS) and the sales charge. Specifically, the correct formula divides the NAVPS by one minus the sales charge rate. This calculation effectively adjusts the NAVPS to reflect the total cost to an investor when purchasing shares in a fund, incorporating any applicable sales charges that will be deducted from the investment amount.

When an investor wishes to buy shares in a mutual fund, they pay the NAVPS plus the sales charge. By using the formula NAVPS / (1 - Sales Charge), you ascertain the total price that the investor will actually pay for each unit of the fund, ensuring that the purchase price takes the sales charge into account. This is essential for investors to know the actual cost of their investment.

Understanding this calculation is crucial when evaluating investments, as it helps investors to comprehend the true cost of acquiring shares in a fund and allows for better financial planning.