The composition of the Fingroup Fund portfolio is as follows:

Stock Shares Price ($)

A 200,000 35
B 300,000 40
C 400,000 20
D 600,000 25
The fund has not borrowed any funds but its accrued management fee with a portfolio
manager currently totals $30,000. There are 4 million units outstanding. What is the
Net Asset Value NAV of the fund?

Solution 1:
Market Value of Assets
Stock Shares Price ($) Market Value of Assets ($)

A 200,000 35 7,000,000
B 300,000 40 12,000,000
C 400,000 20 8,000,000
D 600,000 25 15,000,000
Total 1,500,000 42,000,000

Less: Liabilities
Accrued mgmt fee with portfolio manag 30,000

No. of units 4,000,000

NAV ($) per unit 10.49
A Closed-End Fund has a portfolio currently worth $200mln. It has liabilities of $3mln and 5 million
units outstanding. Determine the NAV of this fund. If the fund sells for $36 per unit, what is the
percentage premium or discount that will appear in the listings of the financial pages? Assume
trading at $42 what is your answer then?

Solution
2:
Calculation of NAV (in $): in million
Market Value of Assets 200
Less: Liabilities 3
No. of units 5
NAV ($) per unit 39.40

Calculation of Premium/ Discount - Market Price = $36 per unit:

Premium/ Discount (%) = (Market Price - NAV) / NAV

Market Price per unit 36
Premium/ Discount (%) -8.63%

Calculation of Premium/ Discount - Market Price = $42 per unit:

Premium/ Discount (%) = (Market Price - NAV) / NAV

Market Price per unit 42
Premium/ Discount (%) 6.60%
 Some MF start as close ended
open ended fund- buying and selling done by mutual fund at NAV

therefor, means trading at a discount

premium
The Equity Fund sells Class A units with a front end load of 4% and Class B units with an annual management fees of 0.5%
both classes of units) and back end load fees (for Class B units only) that start at 5% and fall by 1% for each full year the
investor holds the portfolio (until the fifth year). Assume the rate of return on the fund portfolio is 10% annually, what w
the value of a $10,000 investment in Class A and Class B units if the units are sold after (a) 1 year, (b) 4 years and (c) 10 y
Which fee structure will provide higher net proceeds at the end of the investment horizon?

class A
Load FR 4%
Solution 0.50%
Class A units:
Amount invested (net of front end load)
Value of units after year 1
Value of units year 4
Value of units year 10

Class B units:
Amount invested (no front end load)
Value of units after year 1
Value of units after year 4
Value of units year 10

Analysis:
After year 1 , both class A and class B units provide same return so investor is indifferent to both the classes.

After year 4, class B units have higher investment value and thus will be prefereed over class A units because exit load is
1%
After 10 years, class B UNITS HAVE HIGHER INVESTMENT VALUE AND THUS WILL BE PREERRED OVER CLASS A UNITS
BECAUSE EXIT LOAD IS ZERO %

Question for students' practice

The Investment Fund sells class A units with a front -end load of 6% and class B units with annual M-fees of 0.5% annual
both unit classes) as well as back-end load fees (for Class B shares only) that start at 5% and fall by 1% for the full year th
investor holds the portfolio (until the fifth year). Assume the portfolio rate of return is 10%. If you plan to sell the fund af
years, are class A or class B units the better choice for you? What if you plan to sell after 15 years? Assume $1,000 as
investment.

Solution
Class A units:
Amount invested (net of front end load)
Value of units after 4th year
Value of units after 15th year

Class B units:
Amount invested (no front end load)
Value of units after 4th year
Value of units after 15th year
annual management fees of 0.5% (for
fall by 1% for each full year the
ortfolio is 10% annually, what will be
) 1 year, (b) 4 years and (c) 10 years.
n?

class B
BE 5%
0.50%
Amount ($)
9,600
10,507
13,776
23,683

Amount ($)
10,000
10,507
14,207 back end load 1 time pay therefore no compounding
24,669 no back end load

to both the classes.

lass A units because exit load is only

REERRED OVER CLASS A UNITS

h annual M-fees of 0.5% annually (for

and fall by 1% for the full year the
0%. If you plan to sell the fund after 4
15 years? Assume $1,000 as

Amount ($)

Amount ($)
Mutual funds can effectively charge sales fees in one of three ways: front end load fees, 12b-1(i.e. annual fees), or deferred (i.
that SAS Fund offers its investors the choice of any one of the following sales fee arrangements;
i) 3% front –end load
ii) 0.5% deduction fee
iii) 2% back-end load, paid at the liquidation of the investor’s position.
Also assume that SAS Fund averages gross NAV growth of 12% per year.

a) If you start with $1,00,000 in investment capital, calculate what an investment would be worth in 3 years under each of the
which scheme you prefer.
b) if your investment horizon were to change to 10 years demonstrate whether your decision would change.
c) Explain the relationship between the timing of the sales charge and your investment horizon. In general if you intend to hol
which scheme would you prefer?

Solution
a)
Paticulars 3% front load
Amount invested 97,000
Amt at the end of year 3 136,278

b)
Paticulars 3% front load
Amount invested 97,000
Amt at the end of year 10 301,267

A front end load takes the money right away, thus reducing your initial deposit.
The annual fee is charged on daily net assets under management.
Back end loads are not usually charged untill the holdings are liquidated by the investor.
e. annual fees), or deferred (i.e. back-end) load fees. Assume

h in 3 years under each of the sales fee schemes. Indicate

uld change.
n general if you intend to hold your investment for a long time,

0.5% annual fee 2% back end load

100,000 100,000
138,396 137,683

0.5% annual fee 2% back end load

100,000 100,000
295,400 304,373
The focus fund is a mutual fund that holds long term positions in a small number of non-dividend paying
stocks. The holdings at the end of two years are as follows.
Year 1 Market Year 2 Market
Stock No of shares Price ($) Value No of shares Price ($) Value
A 100,000.0 45.25 4,525,000 100,000 48.75 4,875,000
B 225,000.0 25.38 5,710,500 225,000 24.75 5,568,750
C 375,000.0 14.50 5,437,500 375,000 12.38 4,642,500
D 115,000.0 87.13 10,019,950 115,000 98.50 11,327,500
E 154,000.0 56.50 8,701,000 154,000 62.50 9,625,000
F 175,000.0 63.00 11,025,000 175,000 77.00 13,475,000
G 212,000.0 32.00 6,784,000 212,000 38.63 8,189,560
H 275,000.0 15.25 4,193,750 275,000 8.75 2,406,250
I 450,000.0 9.63 4,333,500 450,000 27.45 12,352,500
J 90,000.0 71.25 6,412,500 90,000 75.38 6,784,200
K 87,000.0 42.13 3,665,310 87,000 49.63 4,317,810
L 137,000.0 19.88 2,723,560 0 27.88 0
M 0.0 17.75 0 150,000 19.75 2,962,500
Total 2,395,000 73,531,570 2,408,000 86,526,570
Cash 3,542,000 2,873,000

Expenses 730,000 830,000

a) Calculate the NAV for a unit of the focus fund at the end of year 1. Include the cash position in the net
total portfolio value. Also note that Focus Fund has issued 54,30,000 units
b) Immediately after calculating its year 1 NAV, Focus Fund sold its position in Stock L and purchased its
position in Stock M (both done at year 1 prices). Calculate Year 2 NAV of the fund per unit and compute
its growth rate.
c)) At the end of year 2, how many fund units of Focus Fund could the manager redeem without having
to liquidate her stock positions.
d)) If immediately after calculating the Year 2 NAV, the manager received investor redemption requests
for 500,000 units, how many stocks/shares of each stock would she have to sell in order to maintain the
same PROPORTIONAL ownership position in each stock? Assume she liquidates the entire cash position
first before selling holdings.

Calculation of NAV for year 1

Market value of Assets
Market value of Shares 73531570
Cash holding 3542000
Total 77,073,570

Less: Liabilities (Expenses) 730,000

Units 5,430,000
NAV 14.06
b)
Calculation of NAV for year 2
Market value of Assets
Market value of Shares 86526570
Cash holding 2873000
Total 89,399,570

Less: Liabilities (Expenses) 830,000

Units 5,430,000
NAV 16.31

Growth rate of NAV 16%

c)
No. of units that can be redeemed without selling any shares 176,137.13

d)
Redemption request (units) 500,000
Redemption request ($) 8,155,577
Cash holding

Value of shares that needs to be liquidated

value fund equity scheme- non dividend
You are considering an investment in a mutual fund with a 4% front load and expense ratio of 0.5%. You can invest instead in a
Bank CD paying 6% interest.
a) If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fun
than in a CD? Assume annual compounding of returns.
b) How does your answer change if you plan to invest for six years? Why does your answer change?
c) Now suppose that instead of a front -load the fund assesses an additional 12b-1 fee of 0.75% per year. What annual rate of
return must the fund portfolio earn for you to be better off in the fund than in the CD? Does your answer depend on your time
horizon?

Solution 6:
a)
Suppose $100 is invested in a bank CD for 2 years 100
Maturity value from bank CD 112.36

Suppose $100 is invested in a mutual fund for 2 years 100

Amt actually invested (net of front load) 96

Maturity value from MF 95.0424 *(1+r%)^2

Equating (1) and (2), we get 1.18221 (1+r%)^2

1+r 1.09
r 8.73%
b)
Suppose $100 is invested in a bank CD for 6 years
Maturity value from bank CD

Suppose $100 is invested in a mutual fund for 6 years

Amt actually invested (net of front load)

Maturity value from MF

Equating (1) and (2), we get

r

c)
Suppose $100 is invested in a bank CD for 1 year
Maturity value from bank CD

Suppose $100 is invested in a mutual fund for 1 year

Amt actually invested (front load is NIL)

Maturity value from MF

Equating (1) and (2), we get

r
nd expense ratio of 0.5%. You can invest instead in a

fund portfolio earn for you to be better off in the fund

oes your answer change?

al 12b-1 fee of 0.75% per year. What annual rate of
n in the CD? Does your answer depend on your time

96*(1+r%)^2*(1-0.5%)^2

112.36=
Corporate Fund started the year with a
NAV of Rs. 12.50. By year end, its NAV
equaled Rs. 12.10. The fund paid year end
distributions of income and capital gains

Solution 8:
NAV0 12.5
NAV1 12.1
Distributio 1.5

Rate of Re (NAV1 - NAV0 + Distribution)/NAV0

8.80%
Consider the following data of GM Mutual Fund (Income plan):
Particulars Rs. in crores
Value of investments 868.55
Receivables 65.15
Accrued income 43.4
Other current assets 260.57
Liabilities 195.43
Accrued expenses 43.4
No. of units outstanding 70

Calculate the NAV per unit

14.26914286
NAV
Consider the following information related to an Index fund and its benchmark index for a period of six months:
MonthsReturn of FundReturn of
Benchma
rk index

Apr 2.50% 2.55%

May -0.50% 0.00%
June 1.40% 1.44%
July 1.00% 1.00%
Aug -1.70% 0.08%
Sept -4.00% 0.00%

Calculate the tracking error of the Index fund’s return during the last six months.
TRACKING ERROR
Consider the following data of an International fund
Particulars Rs. in crores
Investment 2250 1 Sales charge is a commission paid
Receivable 175 (broker, financial planner, investm
Accrued Income 62 2 In general, there are two kinds of
Other current assets 673
Liabilities 725
Accrued expenses 115
No. of units outstanding 175
Public offer price p.u. 13.52

Calculate the sales charge % on Public Offer Price

Solution 10:

NAV

Public offer price NAV/(1 - Sales charge%)

Sales charge%
ge is a commission paid by an investor on his or her investment in a mutual fund. The sales charge is paid to a financial intermediary
nancial planner, investment adviser, distributor, etc.).Sales charges are expressed as a percentage of the investment value.
, there are two kinds of sales charges: front-end loads and back-end loads.
a financial intermediary
estment value.
The following information is related to the assets and liabilities of JM Mutual Fund:

The accrued expenses and accrued income are Rs. 45

crores and Rs. 50 crores respectively. If the number
of outstanding units is 70 crores, calculate the NAV
Consider the following data of JM Mutual Fund (Income plan):
Particulars Rs. in crore
Value of investments 2084.52
Receivables 162.88
Accrued income 47.74
Other current assets 573.23
Liabilities 488.56
Accrued expenses 112.92

If the number of outstanding units is 160 crore and sales charge is 2.5% on the public offer price, correction
calculate the public offering price.
Consider the following data of a mutual fund scheme:

Particulars Rs. in crore

Value of investments 2056.25
Receivables 158.25
Accrued income 25.75
Other current assets 325.26
Liabilities 449.56
Accrued expenses 52.92

If the number of outstanding units is 200 crore and sales charge is 1.5% on the public offer price correction
calculate the public offering price.
Which of the following statement(s) is/are not correct about various types of mutual funds?

(a) In Income Funds, investment is made in various combinations of high yielding common stocks and bonds with a view to ext
on regular basis with safety of principal investment
(b) Balanced funds have modest risk component
(c) In Performance Funds, investment is made in buying equity shares of small companies with relatively high price/earnings ra
higher price volatility
(d) Units of close-ended schemes sell at values which can be more than or equal to or less than their NAV

(e) Open-ended Mutual fund units are issued like any other company’s new issues listed and quoted atstock exchange.
ocks and bonds with a view to extract income

h relatively high price/earnings ratio and

an their NAV

quoted atstock exchange.

Consider the following data of J.M. Mutual Fund (Income plan):

Particulars Rs. in crore

Value of investments 4169.04
Receivables 325.76
Accrued income 95.48
Other current assets 1146.46
Liabilities 977.12
Accrued expenses 225.84
Number of units outstanding 320 crore
Entry Load 2.50%

Mr. Prashant wants to purchase units of this scheme. Calculate the per unit price that will be invested in the scheme.
ested in the scheme.
The following is the information pertaining to an open ended mutual fund scheme:
Particulars Rs. in mn
Liabilities 56.2
Receivables 18.8
Accrued income 6.3
Other current assets 75.6
Value of investments 280
Accrued expenses 12.3

The number of units outstanding is 21.4 million and the fund charges 2% as entry load. Calculate the public offer price.
te the public offer price.
Consider the following data pertaining to equity scheme offered by Wealthy MF scheme:
Particulars
Investments
Receivables
Accrued income
Accrued expenses
Other current assets
Liabilities

The number of outstanding units is 195 crore and repurchase price is Rs.13.25. Calculate the applicable exit load
Rs. in crore
2550
187
95
150
755
750
The NAV of each unit of a closed-end fund at the beginning of the year was Rs.15. By the year end, its
NAV equals Rs.15.50. At the beginning of the year, each unit was selling on the stock exchange at a 2%
premium to NAV. By the end of the year, each unit is selling at a 4% discount to NAV. The fund paid
year-end distributions of income and capital gains of Rs.2.60 on each unit. Calculate the rate of return to
the investor in the fund during the year.
The following is the information pertaining to an open-ended mutual fund scheme.
Particulars
Value of investments
Receivables
Accrued income
Other current assets
Liabilities
Accrued expenses

If the number of outstanding units is 175 lakh and the public offer price is Rs.15.27. Calculate the entry load charged by the fu
Rs. in million
240
15.2
5.2
42.5
33.05
10.4
On 1st April, an open ended scheme of mutual fund had 300 lakh units outstanding with Net Assets Value (NAV) of Rs. 18.75. A
opening NAV plus 2% load, adjusted for dividend equalization. At the end of May, 3 Lakh units were repurchased at opening N
equalization. At the end of June, 70% of its available income was distributed.
In respect of April-June quarter, the following additional information are available:
Rs. in lakh
Portfolio value appreciation 425.47

Income of April 22.95

Income for May 34.425

Income for June 45.45

You are required to calculate

(i) Income available for distribution;
(ii) Issue price at the end of April;
(iii) repurchase price at the end of May; and
(iv) net asset value (NAV) as on 30th June.

Solution
Calculation of Income available for Distribution

Units Per Unit Total (Rs.

(Lakh) (Rs.) In lakh)

Income from April

Add: Dividend equalization

collected on issue

Add: Income from May

Less: Dividend equalization paid

on repurchase

Add: Income from June

Less: Dividend Paid
 outstanding with Net Assets Value (NAV) of Rs. 18.75. At the end of April, it issued 6 lakh units at
nd of May, 3 Lakh units were repurchased at opening NAV less 2% exit load adjusted for dividend
buted.
e available:

Calculation of Issue Price at the end of April Calculation of Repurchase Price at the end

Rs.

Opening NAV Opening NAV

Add: Entry Load 2% of Rs. Less: Exit Load 2% of

18.750 Rs. 18.750

Add: Dividend
Add: Dividend Equalization paid
Equalization paid on
on Issue Price
Issue Price
0
f Repurchase Price at the end of May Closing NAV

Rs.
Rs.
(Lakh)

Opening Net Asset Value

(Rs. 18.75 × 300)

Portfolio Value
Appreciation

Issue of Fresh Units (6 ×

19.2015)

Income Received

(22.950 + 34.425 +
0
45.450)

Less: Units repurchased

0
(3 × 18.564)
Income Distributed -71.9019
Closing Net Asset Value
Closing Units (300 + 6 –
3) lakh
\Closing NAV as on 30th
Rs. 0
June

Closing Net Asset Value

`less: mgt fees 0
Effective benefit goes to unit holders and not AMC
Sun Moon Mutual Fund (Approved Mutual Fund) sponsored open-ended equity oriented scheme “Chanakya Opportunity Fund
At the time of Initial Public Offer on 1.4.1999, Mr. Anand, Mr. Bacchan & Mrs. Charu, three investors invested Rs. 1,00,000 eac
The History of the Fund is as follows:

Date Dividend % Bonus-held RaNet Asset Value per Unit (F.V. Rs. 10)
Plan A Plan B
28.07.2003 20 30.7 31.4
31.03.2004 70 5:04 58.42 31.05
31.10.2007 40 42.18 25.02
15.03.2008 25 46.45 29.1
31.03.2008 1:03 42.18 20.05
24.03.2009 40 1:04 48.1 19.95
31.07.2009 53.75 22.98

On 31st July 2009, all three investors redeemed all the balance units. Calculate annual rate of return to each of the investors.
Consider:
1. Long-term Capital Gain is exempt from Income tax.
2. Short-term Capital Gain is subject to 10% Income tax.
3. Security Transaction Tax 0.2 per cent only on sale/redemption of units.
4. Ignore Education Cess

Dividend Re-invested
Dividend (Closing Units X Face value
Date Investment NAV
payout% of Rs.10 X Dividend Payout
%)

01.04.1999
28.07.2003
31.03.2004
31.10.2007
15.03.2008
24.03.2009

Redemption value
14,906.16 ´ 53.75
Less: Security
Transaction Tax (STT)
is 0.2%
Net amount received
 Less: Short term
capital gain tax @ 10%
on 1,144.43 (53.64* –
48.10≈) = 6,340

Net of tax
Less: Investment
Gain

Annual average return (%)

698,969.69 12 ´ 100 = 67.64%

100,000 124
1.4.1999 to 31.7.2009 - 124 months

(Amount in Rs.) U
Date nit Bonus units Total Balance NAV per unit
01.04.1999 s 10,000 10
31.03.2004 12,500 22,500 31.05
###
31.03.2008 7,500 30,000 20.05
24.03.2009 7,500 37,500 19.95
heme “Chanakya Opportunity Fund”. There were three plans viz. ‘A’ – Dividend Re- investment Plan, ‘B’ – Bonus Plan & ‘C’ – Growth Plan.
nvestors invested Rs. 1,00,000 each & chosen ‘B’, ‘C’ & ‘A’ Plan respectively.

Rs. 10)
Plan C
33.42
70.05
56.15
64.28
60.12
72.4
82.07

of return to each of the investors.

ClosingUnit
Units
Balance∑ Units
lan & ‘C’ – Growth Plan.
Ms. Sunidhi is working with an MNC at Mumbai. She is well versant with the portfolio management techniques and wants to t
constructed and compare the gains and losses from the technique with those from a passive buy and hold strategy. The fund c
constructed for the last 10 months are given below:
Month Ending NAV (Rs. / unit) Month Ending NAV (Rs. / unit)
Dec-08 40 May-09 37
Jan-09 25 Jun-09 42
Feb-09 36 Jul-09 43
Mar-09 32 Aug-09 50
Apr-09 38 Sep-09 52

Assume Sunidhi had invested a notional amount of Rs. 2 lakhs equally in the equity fund and a conservative portfolio (of bond
was being rebalanced each time the NAV of the fund increased or decreased by 15%.

You are required to determine the value of the portfolio for each level of NAV following the Constant Ratio Plan.

Solution

Value of Total value of

Stock Portfolio NAV Value of buy –hold Value of aggressive
Conservative Constant Ratio Revaluation Action
(Rs.) strategy (Rs.) Portfolio (Rs.)
Portfolio (Rs.) Plan (Rs.)

Hence, the ending value of the mechanical strategy is Rs. 2,40,647.58 and buy & hold strategy is Rs. 2,60,000.
echniques and wants to test one of the techniques on an equity fund she has
hold strategy. The fund consists of equities only and the ending NAVs of the fund he

rvative portfolio (of bonds) in the beginning of December 2008 and the total portfolio

Ratio Plan.

Total No. of units in

aggressive portfolio