Public Offering Price (POP)

The public offering price (POP) is the price an investor pays for a mutual fund share: net asset value plus the front-end sales charge.

POP is the ask side of a mutual fund quote and NAV is the bid side. Investors buy at POP and redeem at NAV. The gap between the two is the sales charge, and every calculation on this topic is some rearrangement of one formula.

The two directions of the formula

Going forward: POP = NAV + sales charge. Going backward, when you know the NAV and the sales charge percentage but not the dollar charge: POP = NAV ÷ (1 − sales charge %). And to find the percentage from two prices: sales charge % = (POP − NAV) ÷ POP.

The division step is the part students skip, and it exists because the sales charge is quoted as a percentage of the POP, not of the NAV. The charge is a slice of the final price, so the final price has to be solved for, not built up.

Worked example

A fund’s NAV is $9.15 and it carries the 8.5% maximum sales charge FINRA permits on a load fund.

POP = $9.15 ÷ (1 − 0.085) = $9.15 ÷ 0.915 = $10.00.

The sales charge is $10.00 − $9.15 = $0.85. Check it against the definition: $0.85 ÷ $10.00 = 8.5% of the POP. Measured against the NAV instead, the same $0.85 is $0.85 ÷ $9.15 = 9.3%, and that figure is a wrong answer, not a fact about the fund.

Run it the other way. A fund quotes a NAV of $10.00 and a POP of $10.50. The sales charge is $0.50, and the percentage is $0.50 ÷ $10.50 = 4.76%, not 5.00%.

The exam trap

The trap is multiplication. Take NAV $9.15 and an 8.5% charge, multiply, and you get $9.15 × 1.085 = $9.93. That number will be sitting in the answer choices, because it is what you get by treating the charge as a percentage of NAV. The correct answer is $10.00. Whenever a question gives you NAV and a percentage and asks for a price, divide.

Two smaller traps ride along. First, redemptions happen at NAV, so a question asking what a shareholder receives on a sale of a front-end load fund is not asking about POP at all. Second, forward pricing still governs the timing: the POP is computed from the next NAV calculated after the fund receives the order, never from a price already published.

Related distinctions

Large purchases cut the sales charge at breakpoints, which lowers the POP for the same NAV. A no-load fund has no charge to add, so its POP equals its NAV. And a 12b-1 fee never appears in the POP calculation, because it comes out of fund assets each year rather than out of the purchase price.

Check yourself

1. A mutual fund has a NAV of $18.40 and a sales charge of 8.0%. What is the public offering price?

   1. $19.87
   2. $20.00
   3. $19.86
   4. $18.40

   Show answer and explanation

   Answer: B. $20.00.

   POP = $18.40 ÷ (1 − 0.08) = $18.40 ÷ 0.92 = $20.00. Choice A is $18.40 × 1.08, the trap answer that treats the 8% as a percentage of NAV instead of POP.

2. A fund's NAV is $24.00 and its POP is $25.00. What is the sales charge percentage?

   1. 4.00%
   2. 4.17%
   3. 1.00%
   4. 5.00%

   Show answer and explanation

   Answer: A. 4.00%.

   The charge is $1.00, and it is measured against the POP: $1.00 ÷ $25.00 = 4.00%. Choice B divides by the NAV, the same percentage-of-NAV error in reverse.

Practice it: mutual funds practice questions