Skip to content
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 5 of 37
Worked examplePractical

Worked example: both professors' NAV problems

Two of them, one in dollars and one in rupees.

(A) Section A, page 3. A mutual fund has $100 million in assets and $3 million in short-term liabilities, with 10.765 million shares outstanding. Find the NAV.

(B) Section B, slides 164 and 165. A fund holds ₹42,00,000 of investments against ₹1,00,000 of liabilities, with 3,00,000 units outstanding. Find the NAV per unit, and the value of a holding of 10,000 units.

0 of 8 lines shown.

← BackContinue →