In OEICs using single pricing, a dilution levy may be used to cover the cost of dealing expenses and commissions.

In OEICs using single pricing, a dilution levy may be used to cover the cost of dealing expenses and commissions.

• A. True
• B. False
• C. It is never used
• D. It is always used

Answer: (A)

In single pricing OEICs, the price you pay to buy units or the price you get when you redeem is the same NAV per share for everyone. When a fund experiences large inflows or outflows, dealing costs and broker commissions are incurred to buy or sell securities to meet those flows. A dilution levy is a charge that the manager may apply to subscriptions or redemptions to cover these dealing costs, protecting the value of the fund for the remaining investors. Because it is discretionary and only used when such costs would otherwise dilute the NAV, it isn’t applied automatically in every case, nor is it universally or always applied. So the statement that a dilution levy may be used to cover dealing expenses and commissions is correct.

In single pricing OEICs, the price you pay to buy units or the price you get when you redeem is the same NAV per share for everyone. When a fund experiences large inflows or outflows, dealing costs and broker commissions are incurred to buy or sell securities to meet those flows. A dilution levy is a charge that the manager may apply to subscriptions or redemptions to cover these dealing costs, protecting the value of the fund for the remaining investors. Because it is discretionary and only used when such costs would otherwise dilute the NAV, it isn’t applied automatically in every case, nor is it universally or always applied. So the statement that a dilution levy may be used to cover dealing expenses and commissions is correct.