What we love about unit pricing
Unit pricing plays a critical role in managing Verve Money’s portfolios, because it is a key way to ensure that investors are treated fairly and equally.
By reflecting the true value of the fund, unit pricing helps to determine the returns. That means investors like you know exactly how your investments are performing.
Not only that, but it also ensures that all investors are paying the right price for their unit (or their slice of the pizza), and it allows investors to buy and sell without impacting the value of the underlying assets (or how much the whole pizza is worth).
Do unit prices stay the same?
In the same way that the cost of an *actual* slice of pizza — with its different toppings and flavours — can change, so too can the unit price.
To better understand why it might fluctuate, it can be helpful to have a bit of context on how the unit price is calculated.
Calculating the unit price (a.k.a the cost of a slice of pizza), is done by taking the total cost of your investment and dividing it by how many units (or slices) you’re getting. For example, if one slice is $5, then:
- You spend $5 and get one slice = $5 per unit
- You spend $10 and get two slices = still $5 per unit (even though you’ve spent twice as much)
Of course, as fun as pizza analogies are, shall we break it down with a real example using one of Verve Money’s three investment options? We thought so.
An example that is (sadly) not pizza
When you invest in a fund like ours, you are essentially taking ownership of a certain number of units. And as the value of the overall fund goes up and down, so will the value of the units you own.
So, let’s say the total value of our Verve Money’s Balanced investment option is $10M. And then let’s say that there are 10M units issued to investors like you. The unit price would be $1.00 ($10,000,000 ÷ 10,000,000 = $1.00).
Now let’s say we have a bloody bumper month, and the value of the assets within the fund increases by 10% after fees and taxes. The total value of the fund will increase by 10% to $11M. But the number of units hasn’t changed. So, the new unit price is $11,000,000 ÷ 10,000,000 = $1.10.
Or, let’s say that something happens and the share market takes a bit of a dip (totally normal), and it causes the fund’s assets to decrease by 5%. The total value of the fund is now $9.5M, but still the number of units hasn’t changed. So, the new unit price is $9,500,000 ÷ 10,000,000 = $0.95.