Investor Corner/The wider picture/Risk, Regulation & Advanced Ideas
5.3.8 Fair Valuation
Fair valuation is the technique funds use to price securities when markets are closed or a security is not actively traded. Instead of relying on a stale last traded price, the fund estimates a more reasonable current value.
Why last traded price is not always good enough
If a security has not traded for several days, its last traded price may no longer reflect its actual current value, especially if broader market conditions have shifted meaningfully in the meantime. Using that stale price anyway would mean a fund's NAV does not genuinely reflect the true value of what it holds on that particular day.
How fair valuation addresses this
Funds apply defined, regulator-approved fair valuation methodologies in these situations, using comparable securities, broader market movements, and other relevant available inputs to arrive at a more reasonable current estimate of a security's value, rather than simply defaulting to whatever price it last happened to trade at.
Why this protects all investors fairly
Without fair valuation, an investor redeeming on a day when a stale, outdated price happens to overstate a security's true value would receive more than their genuinely fair share, at the direct expense of investors who remain in the fund. Fair valuation exists specifically to keep NAV calculation equitable across everyone in the fund, regardless of exactly when any individual investor happens to transact.
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