In December, Pacific Investment Management Co., best known as Pimco, agreed to pay nearly $20 million to settle claims by the Securities and Exchange Commission that the firm misled investors in its Pimco Total Return Active ETF bond fund (ticker: BOND ).

The case highlights concerns many investors have in the back of their minds: How do you know the fund's net asset value, or share price, accurately reflects the values of the assets it holds? What if the fund has liquidity problems – trouble buying assets it wants or selling ones it doesn't?

"Liquidity risk is real and ordinary investors need to understand it," says Yuen Yung, CEO of Casoro Capital, a private equity firm in Austin, Texas, specializing in real estate. Setting accurate prices can be a problem with any investment in assets that are not frequently traded, he says.

"Market value is based on what one willing buyer and one willing seller agree to," he says. "When there are not a lot of comparables, then valuation becomes difficult."

[See: 9 Psychological Biases That Hurt Investors .]

This isn't something ordinary investors should have to worry about. After all, the whole idea of a mutual fund or exchange-traded fund is that professional mangers do the buying and selling so the individual investor doesn't have to. And funds tout their liquidity. ETF shares trade like stocks and you should be able to buy and sell with a few clicks of a mouse. Mutual funds can be bought or redeemed through the fund company at the closing price on any trading day.

Experts generally say mispricing worries should not keep ordinary diversified investors up at night, as government regulations and fund procedures should ensure accurate pricing. Still, it's worth remembering that a fund owning bonds issued by small foreign companies you've never heard of may have a tougher time gauging values than one holding U.S. Treasury bonds .

"Most of the time, this is not something that ordinary investors need to worry about, though we think that professional investors should be mindful of liquidity issues and consider them before allocating assets," says Anna Dunn Tabke, director of research at Alpha Capital Management in Atlanta.

She adds, though, that "this becomes more of a concern for investors who venture outside of plain vanilla stock and bond funds."

In the Pimco case, the SEC said the firm overvalued some mortgage securities bought in odd lots, or batches of less than $1 million. The result, the SEC said, was to make the fund look like it was performing better than it was, and better than its competitors, during its first few months of operation in 2012. While the SEC characterized this as a securities violation, Pimco neither admitted nor denied guilt, arguing it had been able to find bargains among odd lots.

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This was an unusual case. But fund managers doing their level best, may find it hard to value certain assets. Suppose your real estate investment trust owns strip shopping centers. Real estate values are typically estimated by looking at sales of comparable properties nearby, but there aren't always lots of examples to go by. And even if there were, what if the fund wants to sell the property and no one wants to buy?

Mutual funds meet shareholder redemptions with cash on hand or by selling assets. Tabke says this usually works but that a flood of redemptions can cause problems.

"A fund that is forced to liquidate securities quickly to meet redemption requests is particularly vulnerable when they hold underlying securities that do not offer the same liquidity, and when those securities turn out to be more difficult to sell than expected," she says.

She cites Third Avenue's Focused Credit Fund ( TFCIX ), which ran into trouble in late 2015 and refused additional redemptions because it could not raise enough cash on illiquid assets.

[See: The 10 Best REIT ETFs on the Market .]

Even if a fund has a good method for valuing illiquid assets, prices can change dramatically with new information, says Anthony D. Criscuolo, portfolio manager with Palisades Hudson Financial Group in Fort Lauderdale, Florida.

"If a mutual fund owns a large position in an illiquid asset which has a significant valuation markdown, it could negatively impact the fund's (net asset value) and trigger shareholder redemptions," he says. "But the fund may not be able, or willing, to sell the illiquid asset at the depressed price, if it is able to sell it at all. Thus, the fund would need to sell other liquid holdings to meet the redemptions, which leaves the illiquid position as a larger portion of the fund overall."

Securities regulations limit illiquid assets in ordinary funds to 15 percent of the holdings, Tabke says. These "Level 3" holdings are valued by the fund itself because "there is not an active market or a closely comparable instrument to price," she says. Level 1 securities are actively traded and therefore easily priced. Level 2 means securities that are not as actively traded but can be priced based on other securities.

ETFs work differently from ordinary mutual funds , which may have to sell holdings to meet redemptions. When an ETF investor wants out, she simply sells to another investor, as with stocks. So ETFs do not need to unload assets to raise cash for redemptions. Also, ETFs deal with a type of market maker whose role is to buy and sell assets when the ETF wants to – if a large swing in demand for ETF shares creates a need to add to reduce the shares in circulation, for instance.

How can investors protect themselves from mispricing and liquidity risk? The first safeguard, Yung says, is that old standby, diversification. The more holdings you have, the less likely one can do you real harm.

He also suggests making sure that the fund is audited by an outside firm at least once a year.

Of course, investors should be especially wary of funds that hold non-mainstream assets like obscure foreign stocks and bonds, bank loans or real estate. Ask how much of the fund is in Level 3 holdings, or could not be liquidated in five to seven days.

Investors should look closely at a fund's prospectus to see what limits it has on illiquid securities, and should take a close look at the holdings and ask a fund rep to explain any illiquid positions, Criscuolo says.

[See: 12 Steps Toward a Strong 401(k) .]

"If the exposure is too large, it should be a red flag," he says.

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