Market volatility

Dilution levy

This is an explicit charge that fund managers may apply to specific client deals (usually when they’re individually or collectively large relative to the size of the fund) to cover the cost of buying and/or selling the underlying assets held by the fund.

A fund manager may impose a dilution levy for investors who’ll continue to hold shares/units in a fund from bearing costs incurred as a result of other investors choosing to sell their holdings in the fund.

A dilution levy is usually expressed as a percentage of the value of the deal.

A dilution levy differs from a dilution adjustment in that it's a separate, explicit charge that fund managers can choose to apply to specific client deals. See more about dilution adjustments below.

Dilution adjustment

A dilution adjustment is a change to the share/unit price of a single-priced fund. It’s applied by fund managers to help existing investors from potentially bearing the costs of buying or selling underlying investments as a result of large inflows into or outflows from a fund. These costs can reduce – or dilute – the value of the fund for existing investors, so when a dilution adjustment is applied, this can reduce this effect on the investors remaining in the fund.

Fair value adjustment / Market value adjustment

The share/unit price of a fund is usually based on the market’s valuation of its underlying assets, taking into account a number of factors including fees, charges and expenses. A fair value adjustment may be applied in circumstances where the last valuation of the underlying assets is unlikely to reflect their current value (eg where the asset isn’t valued as frequently as the fund is priced and market conditions have changed).

A fair value adjustment means that the daily fund price is amended to be more reflective of the likely price that the fund could buy and/or sell underlying assets and ensures that all investors (whether dealing in the fund or not) are treated fairly.

Fund suspension

Fund managers may, in specific circumstances, decide to stop accepting new purchase and redemption requests where they and the trustee/depository agree it’s in the best interests of investors in the fund to do so. Any dealing requests placed while the fund is suspended may be cancelled, or held and processed when the suspension is lifted, depending on the circumstances and the terms set out in the fund’s prospectus.