Understanding Fund Unit Prices
Overview
A unit price is simply what one unit of a fund is worth. Your pension value is calculated by multiplying the units you hold by the unit price. When the price goes up, your pension grows. When it goes down, your pension falls. Understanding unit prices helps you make sense of how your pension value moves.
What Is a Unit
A unit represents your share of an investment fund. When you put money into a fund, you're buying units at the current price. Everyone in the same fund gets the same unit price on any given day - the only difference is how many units each person holds.
Think of it like buying slices of a very large cake. The cake is the fund's total investments. Your units are your slices. As the cake grows or shrinks in value, so does each slice.
How Prices Are Calculated
Fund managers work out unit prices daily. They add up the value of everything in the fund - shares, bonds, cash, whatever it holds. They subtract any liabilities. Then they divide by the total number of units in existence. That gives the price per unit.
This calculation happens using closing market prices from the previous trading day. So there's always a small lag between market movements and updated unit prices.
Why Prices Move
Unit prices move because the underlying investments change in value. For equity funds, prices follow the stock market - up when shares rise, down when they fall. For bond funds, interest rate changes are the main driver. Cash funds barely move at all since they hold stable assets.
Currency movements can also affect funds that invest overseas. If the pound weakens against the dollar, US investments become worth more in sterling terms, pushing the unit price up even if the underlying shares haven't moved.
Fund charges are usually baked into the unit price too, reducing it very slightly each day to cover management costs.
Single vs Dual Pricing
Most modern pension funds use single pricing - one price for buying and selling units. It's simple and transparent.
Some older funds use dual pricing with separate buy and sell prices. The buy price is slightly higher, the sell price slightly lower. The gap between them covers transaction costs. If your fund uses dual pricing, your statement value is typically based on the sell price.
Don't Compare Unit Prices Between Funds
A common mistake is thinking a fund with a higher unit price is somehow better or more expensive. It isn't. Unit prices just reflect the fund's history. A fund launched 20 years ago might have a £5 unit price simply because it's grown over time. A new fund with identical investments might have a £1 price because it started recently.
What matters is how the price changes over time, not the price itself. A fund going from £1 to £1.10 has performed exactly the same as one going from £10 to £11 - both returned 10%.
Unit Prices and Your Decisions
When you switch funds, you sell units at one price and buy at another. Regular contributions benefit from pound-cost averaging - you buy more units when prices are low and fewer when high, smoothing out volatility over time.
Avoid reacting to short-term price movements. Daily ups and downs are normal market noise. Focus on whether your overall investment strategy makes sense for your timeline and goals.
For Financial Advisers
For IFAs, we can provide current and historical unit prices, confirm pricing methodology, and supply bid/offer spreads where dual pricing applies. We can detail swing pricing thresholds if relevant and provide unit price data for performance calculations and client reporting.