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Sem 5 Prep
← Money & BankingMutual funds

Formulas for this chapter

Net asset value

NAV = (Market value of assets - Portfolio liabilities) / Units outstanding Value of a holding = units held x NAV

Every mutual fund numerical. Net the liabilities off the assets before dividing. Assets include investments, money market instruments, cash and receivables; liabilities include expenses payable, management fees and accrued liabilities.

units outstanding
Total units issued to all investors on that date

Costs, loads and compounding

Amount invested = investment x (1 - front-end load) Net return = gross return - operating expense ratio Ending value = amount invested x (1 + net return)^n After-tax net return = (gross - OER) x (1 - tax rate)

Cost questions. Deduct the load once, at the start, and the expense ratio every year. Never subtract the expense ratio from the ending value: it compounds against you.

OER
Operating expense ratio, 0.2% to 2% of average net assets
n
Number of years held

SIP average cost

Units in a month = monthly amount / NAV that month Average cost per unit = total invested / total units

Any SIP question. The average cost is always at or below the simple average of the NAVs, because a fixed rupee amount buys more units at a low NAV. Averaging the NAVs is the error to avoid.

monthly amount
The fixed rupee instalment, invested on the stated date each period

AMC requirements

Seed capital = min(1% of amount raised, Rs 50 lakh) Net worth >= Rs 50 crore at all times Independent directors >= 50% of the board

Questions on the SEBI structure. Compute the 1% first, then apply the ₹50 lakh cap, which binds for any scheme raising more than ₹50 crore.

amount raised
Money collected in all open-ended schemes of the fund
Step 3 of 37
The real wordsTheory

Open-end funds

Open-end fundA fund where the number of shares issued depends solely on investor demand, bought and sold directly through the investment company rather than on an exchange.

SEBI's version says the same in four lines: no fixed maturity date, continuous sale and re-purchase requests accepted, transactions are NAV-based, and unit capital is not fixed.

That last point is the whole difference from a closed-end fund, and it is why the NAV, not a market price, is the number that matters.

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