How does dual pricing work?
Most unit trusts are ‘dual-priced’ – they have an offer (or buying) price, and a bid (or selling) price. The difference between them is known as the bid-offer spread, and is made up of the initial charge, the difference between the buying and selling price of the underlying holdings, and other costs incurred by the fund (for example stockbroking commission and Stamp Duty).
Normally, the prices are calculated as follows. The manager starts with the ‘creation’ price, which is the cost of creating a new unit. This includes the price of the underlying holdings which need to be purchased, plus all other dealing costs borne by the manager. The initial charge is added to the creation price to give the offer price, and the bid-offer spread subtracted from the offer price to give the bid price.
Please note that even if we offer a full saving on the initial charge, this will only reduce the price paid to the creation price, and won’t entirely eliminate the bid-offer spread.