Community Forex Questions
What is mutual fund split?
A mutual fund is divided into two separate funds, an equity fund and a fixed income fund. The equity fund invests in stocks, bonds, and other assets. The fixed income fund invests in government bonds, corporate bonds, high-yield bonds, etc. A mutual fund split generally occurs when the administrator decides that the asset classes are too disparate to suit one another.
Mutual funds split similarly to individual stocks, but they do so less often. Like stock splits, mutual fund splits do not result in a change in net value, so they are largely used as a marketing tool.

Mutual fund splits occur when the number of shares outstanding is increased while the price per share is decreased by the same amount. A mutual fund's NAVPS is equal to the value of the fund's portfolio, less any liabilities, divided by the number of shares outstanding.

Mutual funds experience far fewer splits than individual stocks, with 2:1 and 3:1 splits being the most common. In a 2:1 split, the number of outstanding shares is doubled, but the price per share is halved. By splitting 3:1, the number of shares triples and the share price drops to one-third of what it was before.
A mutual fund split is typically used when an investor would like to purchase shares in more than one class or share class. Split shares are exchanged at the dividend value which differs from the net asset value.

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