Maximise Your Potential With Forgiveness

CA-FINAL
SFM
MUTUAL FUND
RAJESH RITOLIA, FCA
HELPING HAND INSTITUTE
G-80, 2ND FLOOR, GUPTA COMPLEX, LAXMI NAGAR, DELHI-92
PH: 9350171263, 9310071263
Email: rritolia@correctingmyself.in; Web: correctingmyself.in
YOU PAST MISTAKES ARE MEANT TO GUIDE YOU NOT DEFINE YOU
If you think you are too small to make a difference …. Try sleeping with mosquito in the room
A man who conquers himself is greater than one who conquers a thousand men in battle.
the miracle is not that i got success. The miracle is that i had the courage to start.
The best fighter is never angry.
There r three ways of handling anger. By expression, by suppression and by forgiveness. The
right way to overcome anger is by forgiveness.
Expect nothing and accept everything.
THOSE WHO CAN NOT CHANGE THEIR MIND, CANNOT CHANGE ANYTHING
RELATIONSHIP IS NOT HOLDING HANDS WHILE YOU UNDERSTAND EACH OTHER…
IT'S ABOUT HAVING LOTS OF MISUNDERSTANDINGS AND STILL NOT LEAVING EACH OTHER'S
HANDS.
Chapter Analysis
Theory
4
3.5
3
2.5
2
T
1.5
1
0.5
0
M11 N11 M12 N12 M13 N13 M14 N14 M15 N15
PRACTICAL
18
16
14
12
10
8 P
6
4
2
0
M11 N11 M12 N12 M13 N13 M14 N14 M15 N15
Chap – 9 SUMMARY OF MUTUAL FUND 9A.1
Index Particulars Summary of Topics Q No Exam RTP
9.1 Mutual Fund A mutual fund is a trust that pools the savings of a number of investors who share a common financial
goal. A mutual fund is the most suitable investment for the cautious investor as it offers an opportunity
to invest in a diversified professionally managed basket of securities at a relatively low cost.
9.1.1 How Mutual Funds work - The money collected from the investors is invested by a fund manager in different types of securities.
for you - These could range from shares and debentures to money market instruments depending upon the
scheme’s stated objectives.
- The income earned through these investments and capital appreciation realized by the scheme are
shared by its unit holders in proportion to the units owned by them.
- Mutual Fund could be the best avenue for risk averse
9.2 NAV and Return of - This is the value per unit of a scheme on a particular day called the valuation day. It is the value of M-04
Units of Mutual Fund net assets of the fund. The investors' subscription is treated as the capital in the balance sheet of the
fund and the investments on their behalf are treated as assets. The NAV is calculated for every N-04
scheme of the MF individually.
- There are three aspects which need to be highlighted:
- (i) It is the net value of all assets less liabilities. NAV represents the market value of total assets of
the Fund less total liabilities attributable to those assets.
- (ii) NAV changes daily. The value of assets and liabilities changes daily.
- (iii) NAV is computed as a value per unit of holding.
9.2.1 Calculation of Net Asset - NAV per unit = (Net assets of the scheme)/ Number of units outstanding OR 1 Nov-14
Value of Units of Mutual - NAV per unit = (MV of all Investment + other assets of the scheme - Liabilities of the
Fund scheme)/Number of units outstanding under the scheme
- Net assets of the scheme = Market value of traded investments + Estimated value of non
traded listed securities + Estimated value of unlisted securities + Receivables + Accrued
Income + Other Assets - Accrued Expenses - Payables - Other liabilities
9.2.2 Calculation of Return There are three types of income from owning mutual fund units 2-4 M-15 N-12
from MF - Cash Dividend
M-13
- Capital Gains distribution
- Changes in NAV per unit [Unrealised capital gain] M-10-O
% Return on units of MF = (NAV1 + Income distributed + Capital Gain Distributed – N-09-O
NAV0)/NAV0
M-09-O
N-04
M-03
- NAV must be given or calculated as of the date of reinvestment of dividend
9.2.3 Calculation of return 5 N-11 M-14
- No of Units to be purchased from reinvestment = Dividend Received/NAV as on date of reinvestment
from MF if Income is
- In this case Initial no of units and closing no of units will be different M-11
reinvested
- % Return on units of MF = (Closing Investment – Opening Investment)/Opening
M-06
Investment
- Closing Investment = No of units at Closing*NAV at Closing
9.2.4 Calculation of NAV on the If NAV0 and Return is given, then 6-7 N-15
basis of Return NAV1 = Return*NAV0/100 + NAV0 – Dividend – Capital Gain N-13
N-12
N-06
- There are 2 type of expenses incurred by Mutual Fund
9.3 Costs incurred by
- Initial Expenses attributable to establishing a scheme under a Fund known as issue exp
Mutual Fund
- Ongoing recurring expenses (Management Expense Ratio) which is made up of
(a) Cost of employing technically sound investment analysts
(b) Administrative Costs
(c) Advertisement Costs involving promotion and maintenance of Scheme funds.
- For Calculating Issue Exp or Recurring Exp, Following equation would be used.
9.3.1 Calculation of Issue Exp, 8 M-09 M-13
- Indifferent Point between Own Investment and Investment by MF
Recurring Exp, Actual
- Return from own investment by Investor = Effective return provided by MF to Investor N-03
return of MF
- Effective return provided by MF to Investor = (Return earned by Mutual Fund – Recurring Exp
p.a.)*(1-Issue Cost)
- Entry Fees is charged to investor at the time of Purchase of Units of MF by investor
9.4 Entry fees and Exit 9-10
- Exist fees is charged to investor at the time of sale of units of MF by investor
fees in MF
- Purchase Price of units of MF for Investor = NAV as on date of purchase + Entry Fees
- Sale Price of units of MF for Investor = NAV as on date of purchase - Exit Fees
9.4.1 Calculation of Return Return = (Sale – Purchase)/Purchase 11-12
from units of MF in case
of Entry or Exit Fees
9.5 Calculation of NAV Asset Values : Valuation Rule 13-19 M-14 N-14
after calculating Value - Liquid Assets e.g. cash held - As per books M-13 N-13
of Assets of MF - All listed and traded securities (other than those held as not for sale) - Last closing price quoted in a
stock exchange immediately before the valuation day. M-12 N-11
- In case security is traded in more than one exchange, the price quoted in a exchange where the M-11
security is mostly traded.
- Debentures and Bonds - Closing traded price or we can calculate Value of Debenture or BOND on YTM M-10
basis as we have learnt in Chapter Bond Valuation. N-09
- Valuation of Unlisted Equity Shares - = EPS of Company whose value is to be calculated*PE ratio of
Comparable Company after adjustment for risk
- Fixed Income Securities [Debenture, Bond] - Issue price + Intt Accrued for the period from date of
issue to date of valuation
- Value of Bond or Debenture may also be calculated as we have learnt in Chapter Bond Valuation
- In case of listed Units, MP of Units may be different from its NAV.
9.6 Calculation of 20-21
- If MP>NAV, then Units are said at Premium over NAV
Premium/ Discount on
- If MP<NAV, then Units are said at Discount under NAV
NAV in compare to
- Calculation of Premium/ Discount on NAV = (MP-NAV)*100/NAV
Market price of Units
- If MP and Premium/Discount is given then, NAV can be calculated as follows
of MF
- NAV = MP/(1+Premium) or MP/(1-Discount)
- Reinvestment of Dividend
9.7 Calculation of Return 22 N-10-O
- Bonus Plan
of Various type of
N-08-O
Scheme of MF
N-05
- New investors are not entitled to any share of the income of a mutual fund scheme which arose before
9.8 DIVIDEND 23-24 N-15
they bought their units. However, at the end of each distribution period the fund management
EQUALISATION
allocates the same amount from the income of the fund to each unit. To compensate for this an M-09
equalisation payment is added to the cost of new units. This is the amount of income that has arisen
up to the date of purchase of the unit. Because these payments are included in the amount available
for distribution they are effectively repaid to the purchaser. The purchaser's dividend voucher at the
end of the first distribution period should show the amount of the returned equalisation payment.
9.9 Theory Explain briefly about net asset value (NAV) of a Mutual Fund Scheme. M-04
N-04
Explain briefly the advantages of investing in mutual funds. M-09

M-07
Briefly explain what is an exchange traded fund N-13 N-15

M-10
Distinguish between Open Ended and Close Ended Schemes M-15

N-10
Write short notes on the role of Mutual Funds in the Financial Market. M-03
Explain how to establish a Mutual Fund. N-03
What are the investors’ rights & obligations under the Mutual Fund Regulations? Explain different N-05
methods for evaluating the performance of Mutual Fund.
What are the drawbacks of investments in Mutual Funds? N-08
Write short notes on Money Market Mutual Fund N-11
What are the signals that indicate that is time for an investor to exit a mutual fund scheme N-14
Chap – 9 MUTUAL FUND 9B.1
9.1 Mutual Fund

A mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. A mutual fund is the most suitable investment for the cautious investor as it offers
an opportunity to invest in a diversified professionally managed basket of securities at a relatively
low cost.
9.1.1 How Mutual Funds work for you

The money collected from the investors is invested by a fund manager in different types of
securities.
These could range from shares and debentures to money market instruments depending upon
the scheme’s stated objectives.
The income earned through these investments and capital appreciation realized by the scheme
are shared by its unit holders in proportion to the units owned by them.
Mutual Fund could be the best avenue for risk averse
9.2 NAV and Return of Units of Mutual Fund

ICAI RTP ICWA ICSI
May-03 M-04 Nov-12 16
Nov-04 M-06 May-14 7
May-06 M-06
Nov-06 M-06
May-09-O M-04
Nov-09-O M-06
May-10-O M-05
May-11 M-08
Nov-11 M-05
Nov-12 M-05
May-13 M-10
Nov-13 M-05
Nov-14 M-04
May-15 M-04
Nov-15 M-08
[May-2004] [M-4] and [Nov-2004] [M-6] Explain briefly about net asset value (NAV) of a
Mutual Fund Scheme.
Solution
9.2.1 Calculation of Net Asset Value of Units of Mutual Fund

(a) This is the value per unit of a scheme on a particular day called the valuation day. It is the
value of net assets of the fund. The investors' subscription is treated as the capital in the
balance sheet of the fund and the investments on their behalf are treated as assets. The
NAV is calculated for every scheme of the MF individually.
(b) There are three aspects which need to be highlighted:

(i) It is the net value of all assets less liabilities. NAV represents the market value of total
assets of the Fund less total liabilities attributable to those assets.
(ii) NAV changes daily. The value of assets and liabilities changes daily.
(iii) NAV is computed as a value per unit of holding.
(c) Calculation of NAV of units of Mutual Fund
NAV per unit = (Net assets of the scheme)/ Number of units outstanding
OR
(Value of portfolio of the scheme + other assets of the scheme - Liabilities of the scheme)
Number of units outstanding under the scheme
Net assets of the scheme =
Market value of traded investments + Estimated value of non traded listed securities + Estimated
value of unlisted securities + Receivables + Accrued Income + Other Assets - Accrued Expenses -
Payables - Other liabilities
(d) NAV of M/F Scheme is published on a daily basis in the newspapers and electronic media
and play an important role in investors' decision to enter or to exit.
Ex: As on 01/01/2012
Liability Amt Assets Amt
10000 Units of Rs.10 100000 Cash 100000
100000 100000
As on 02/01/2012
10000 Units of Rs.10 100000 Investment 90000
Cash 10000
100000 100000
NAV = 100000/10000 = Rs.10 per Unit
As on 03/01/2012
10000 Units of Rs.10 100000 Value of Investment 95000
Profit on Investment 5000 Cash 10000
105000 105000
NAV = 105000/10000 = Rs.10.5 per Unit
As on 04/01/2012
10000 Units of Rs.10 100000 Value of Investment 98000
Profit on Investment 8000 Cash 10000
108000 108000
NAV = 105000/10000 = Rs.10.8 per Unit
Question-1 [ICWA-Ch-2-2]
Name of the Scheme Money Plant
Size of the Scheme Rs.100 Lacs
Face Value of the Share Rs.10
Number of the outstanding shares 10 Lacs
Market value of the fund's investments Receivables Rs.180 Lacs
Accrued Income Rs.1 lakhs
Receivables Rs.1 lakhs
Liabilities Rs.50,000
Accrued expenses Rs.50,000
Find NAV per unit? [Ans: Rs.18.10 Per unit]
Solution-1
NAV per unit = (Investment + Recoverable + Accrued Income – Liabilities – Accrued exp)/No of units (mutual fund)
= (180 lacs + 1 lacs + 1 – 0.50 lacs – 0.50 lacs)/10 Lacs = Rs.18.10 per unit
Question-1A [Nov-2014] [M-4] Cinderella mutual Fund Has the following assets in scheme
Rudolf at the close business on 31st march,2014.
Company No. of Shares Market Price Per Share
Nairobi Ltd 25000 Rs 20
Dakar Ltd 35000 Rs 300
Senegal Ltd 29000 Rs 380
Cairo Ltd 40000 Rs 500
The total number of units of scheme Rudolf are 10 Lacks. The Scheme Rudolf Has accrued
expenses of Rs 2,50,000 and other Liabilities of Rs 2,00,000. Calculate the NAV per unit of the
scheme Rudolf.
9.2.2 Calculation of Return from MF

(a) There are three types of income from owning mutual fund units
- Cash Dividend
- Capital Gains distribution
- Changes in NAV per unit [Unrealised capital gain]
(b) % Return on units of MF =

(NAV1 + Income distributed + Capital Gain Distributed – NAV0)/NAV0
Question-2 [ICWA-Ch-2-8]
A mutual fund had a net asset value (NAV) of Rs.50 at the beginning of the year. During the year
a sum of Rs.4 was distributed as income (dividend) besides Rs.3 as capital gains distribution. At
the end of the year NAV was Rs.55, calculate total return for the year. [Ans: 24%]
Suppose further the aforesaid Mutual Fund in the next year gives a dividend of Rs.5 as income
distribution and no capital gains distribution and NAV at the end of second year is Rs.50. What is
the return for the second year. Ans: 0%]
Question-2A [May-2003] [M-4] [May-2010-O] [M-5] [SM] [Similar in ICWA-Ch-2-11]

[SP]
A Mutual fund that had a NAV of Rs.20 at the beginning of month made income and capital gain
distribution of Re.0.0375 and Re.0.03 per share respectively during the month, and then ended
the month with a NAV of Rs.20.06. Calculate monthly return. [Ans: 7.65%]
Question-2B [SM-2] [ICWA-Ch-2-4]
Question-2C [May-2009-O] [M-4]
Question-3 [SP] An investor bought units of a mutual fund for Rs.20.425. At the end of the
year, the worth of his holding was Rs.21.85 and he had received a dividend of 17.5%. Using the
simple total return method, compute his return. [Ans: 15.554%]
Question-4 [Nov-2004] [M-6] [Same Question in ICWA-Ch-2-9]

A has invested in three Mutual Fund Schemes as per details below:
MF-A MF-B MF-C
Date of Investment 01.12.03 01.01.04 01.03.04
Amount of investment Rs.50,000 Rs.1,00,000 Rs.50,000
Net Asset Value (NAV) at entry date Rs.10.50 Rs.10 Rs.10
Dividend received up to 31.03.04 Rs.950 Rs.1,500 Rs. Nil
NAV as at 31.03.04 Rs.10.40 Rs.10.10 Rs.9.80
Required: What is the effective yield on schemes to Mr. A up to 31.03.04? [Ans: 2.8428%; 10%;
-24%]
Question-4A [Nov-2009-O] [M-6] [RTP-Nov-2012-16] [SP] Mr. Sinha has invested in three
Mutual fund schemes as per details below:
SCHEME X SCHEME Y SCHEME Z
DATE OF INVESTMENT 01.12.2008 01.01.2009 01.03.2009
AMOUNT OF INVESTMENT Rs.500000 Rs.100000 Rs.50000
NET ASSET VALUE AT ENTRY DATE Rs.10.50 Rs.10.00 Rs.10.00
DIVIDEND RECEIVED UPTO 31.03.2009 Rs.9,500 Rs.1,500 NIL
NAV AS AT 31.3. 2009 Rs.10.40 Rs.10.10 Rs.9.80
You are required to calculate the effective yield on per annum basis in respect of each of the
three schemes to Mr. Sinha upto 31.03.2009.
Question-4B [May-2013] [M-10]

Question-4C [May-2015] [M-4]
9.2.3 Calculation of return from MF if Income is reinvested

(a) NAV must be given or calculated as of the date of reinvestment of dividend
(b) No of Units to be purchased from reinvestment

= Dividend Received/NAV as on date of reinvestment
(c) In this case Initial no of units and closing no of units will be different
(d) % Return on units of MF =

(Closing Investment – Opening Investment)/Opening Investment
Closing Investment = No of units at Closing*NAV at Closing
Question-5 [May-2006] [M-6] [RTP-May-2014-7] [RTP-May-2012-12] [Same in ICWA-

Ch-2-14]
A Mutual Fund having 300 units have shown its NAV of Rs.8.75 and Rs.9.45 at the beginning and
at the end of the year respectively. The Mutual Fund has given two options:
(a) Pay Rs.0.75 per unit as dividend and Rs.0.60 per unit as a capital gain. Or [Ans: 23.43%]
(b) These distributions are to be reinvested at an average NAV of Rs. 8.65 per unit. [Ans:
24.848%]
(c) What difference it would make in terms of return available and which option is preferable?
Question-5A [Nov-2011] [M-5] [SP] Orange purchased 200 units of Oxygen Mutual Fund at
Rs.45 per unit on 31.12.2009. In 2010, he received Rs.1 as dividend per unit and a capital gains
distribution of Rs.2 per unit.
(i) Calculate the return for the period of one year assuming that the NAV as on 31.12.2010 was
Rs.48 per unit.
(ii) Calculate the return for the period of one year assuming that the NAV as on 31.12.2010 was
Rs.48 per unit and all dividends and capital gains distributions have been reinvested at an
average price of Rs.46 per unit.
Ignore taxation.
Question-5B [May-2011] [M-8]
9.2.4 Calculation of NAV on the basis of Return

(a) If NAV0 and Return is given, then
NAV1 = Return*NAV0/100 + NAV0 – Dividend – Capital Gain
Question-6 [Nov-2012] [M-5] The following information is extracted from steady Mutual
Fund’s Scheme:
Assets Value at the beginning of the month Rs.65.78
Annualised Return 15%
Distribution made in the nature of Income and Capital Gain (Per Unit) Rs.0.50 and Rs.0.32
You are required to:

(a) Calculate the month end NAV of the mutual fund scheme.
(b) Provide a brief comment on the month end NAV
Question-7 [Nov-2015] [M-8] Mr X on 1.7.2012, during the initial offer of some Mutual Fund
invested in 10,000 units having face value of Rs.10 for each unit. On 31.3.2013 the dividend
operated by the MF was 10% and Mr X found that his holding period return was 115%. On
31.03.2014, 20% dividend was given. On 31.3.2015 Mr X redeemed all his balance of 11,296.11
units when his holding period return was 202.17%. What are the NAV as on 31.3.2013,
31.03.2014 and 31.3.2015?
Question-7A [Nov-2006] [M-6] [ICWA-Ch-2-6] [SP] Mr X on 1.7.2000, during the initial

offer of some Mutual Fund invested in 10,000 units having face value of Rs.10 for each unit. On
31.3.2001 the dividend operated by the MF was 10% and Mr X found that his annualized yield
was 153.33%. On 31.03.2002, 20% dividend was given. On 31.3.2003 Mr X redeemed all his
balance of 11,296.11 units when his annualized yield was 73.52%. What are the NAV as on
31.3.2001, 31.03.2002 and 31.3.2003?
Question-7B [Nov-2013] [M-5]
9.3 Costs incurred by Mutual Fund

ICAI RTP ICWA ICSI
N-03 M-04 M-13 15
M-09 M-02
(a) There are 2 type of expenses incurred by Mutual Fund
(i) Initial Expenses attributable to establishing a scheme under a Fund known as issue exp
(ii) Ongoing recurring expenses (Management Expense Ratio) which is made up of

(a) Cost of employing technically sound investment analysts
(b) Administrative Costs
(c) Advertisement Costs involving promotion and maintenance of Scheme funds.
The Management Expense Ratio is measured as a % of average value of assets during the
relevant period.
9.3.1 Calculation of Issue Exp, Recurring Exp, Actual return of MF

(a) For Calculating Issue Exp or Recurring Exp, Following equation would be used.
Indifferent Point between Own Investment and Investment by MF
Return from own investment by Investor = Effective return provided by MF to Investor
Effective return provided by MF to Investor = (Return earned by Mutual Fund – Recurring

Exp p.a.)*(1-Issue Cost)
Question-8 [Same in ICWA-Ch-2-13]

You can earn a return of 14% by investing in equity shares on your own. You are considering a
recently announced equity mutual fund scheme where the initial issue expenses are 6%. You
believe that the mutual fund scheme will earn 16.5%. At what recurring expenses (in percentage
terms) will you be indifferent between investing on your Own and investing through the mutual
fund? [Ans: 1.617%]
Question-8A [Nov-2003] [M-4] [RTP-May-2013-15] [Same in ICWA-Ch-2-10]

Mr. A can earn a return of 16% by investing in equity shares on his own. Now he is considering a
recently announced equity based mutual fund scheme in which initial expenses are 5.5% and
annual recurring expenses are 1.5%. How much should the mutual fund earn to provide Mr. A
return of 16%. [Ans: 18.43%]
Question-8B [May-2009] [M-2] [N] Mr. X earns 10% on his investments in equity shares. He
is considering a recently floated scheme of a Mutual Fund where the initial expenses are 6% and
annual recurring expensed are expected to be 2%. How much the Mutual Fund scheme should
earn to provide a return of 10% to Mr. X?
9.4 Entry fees and Exit fees in MF

ICAI RTP ICWA ICSI
(a) Entry Fees is charged to investor at the time of Purchase of Units of MF by investor
(b) Exist fees is charged to investor at the time of sale of units of MF by investor
(c) Purchase Price of units of MF for Investor = NAV as on date of purchase + Entry Fees
(d) Sale Price of units of MF for Investor = NAV as on date of purchase - Exit Fees
Question-9 The NAV of ABC Fund on January 6, 2002 was Rs.25.8750. If the fund charged
1.75% as entry load and 0.50% as exit load, what are the sale and repurchase prices to the
investor?
Question-9A [SP] The NAV of MF is Rs.15. The entry load is 2.25%. What amount of
investment is required to purchase 100 units?
Question-10 The NAV of an equity fund was 38.1250. The fund charged 2.25% as entry load
and 0.25% as exit load. If an investor wants to invest Rs. 64000 into this fund, what is the
number of units he will get? [Ans: 1641.75 Units]
9.4.1 Calculation of Return from units of MF in case of Entry or Exit Fees

(a) Return = (Sale – Purchase)/Purchase
Question-11 You are considering investing in one of following 2 NFOs of 2 Mutual Funds, issue
price per unit = Rs.10.
A: Entry load 2.25%. No exit load
B: Entry load 0.90%, Exit load as per the following table:
Redemption on before the expiry of 1 year 0.50%
Redemption after expiry of 1 year but before the expiry of 2 years 0.40%
Redemption on or after expiry of 2 years but before the expiry of 3 years 0.30%
Redemption on or after expiry of 3 years but before the expiry of 4 years 0.20%
Redemption on or after expiry of 4 years 0.10%
In which mutual fund will you invest if your time horizon of the investment is 1 year, 4 years?
Assume the rate of ROI of the mutual fund will be 12% p.a. (Net of expenses)
Question-12 [SP] Mr. A invest Rs.1000 in MF, the entry load fees is 2.25%. He got 50 units.
What is the NAV at the time of investment?
His investment time is 6 months. MF charges exit load of 0.50% if the redemption is done on or
after the 6 months but before 1 year. What is the annualized return to the investor if he gets his
investment redeemed on expiry of 6 months assuming that NAV at that time is Rs.25 per unit.
9.5 Calculation of NAV after calculating Value of Assets of MF

ICAI RTP ICWA ICSI
N-09 M-08 N-11
N-09 M-08 N-13 10
M-10 M-06 N-14 16
M-11 M-05
M-12 M-08
M-13 M-08
M-14 M-08
Asset Values : Valuation Rule

Nature of Assets Valuation Rule
Liquid Assets e.g. cash held As per books
All listed and traded securities Last closing price quoted in a stock exchange immediately
(other than those held as not for before the valuation day.
sale) In case security is traded in more than one exchange, the
price quoted in a exchange where the security is mostly
traded.
Debentures and Bonds Closing traded price or we can calculate Value of Debenture
or BOND on YTM basis as we have learnt in Chapter Bond
Valuation.
Valuation of Unlisted Equity = EPS of Company whose value is to be calculated*PE ratio of
Shares Comparable Company after adjustment for risk
For example, equity share of X Ltd are non traded security.
Its EPS is Rs.20. EP ratio of Y’s Ltd equity shares (Which is
comparable traded securities) is 10%. For the purpose of
valuation of equity shares EP ratio should be taken more than
10% [because of lower liquidity of equity shares of X Ltd] say
12.5%. The value of equity shares of X Ltd may be taken as
20/0.125 = 160
Fixed Income Securities Issue price + Intt Accrued for the period from date of issue to
[Debenture, Bond] date of valuation
Value of Bond or Debenture may also be calculated as we
have learnt in Chapter Bond Valuation
Question-13 A mutual fund holds a 91 day treasury bill, issued at Rs.95.25. Redeeming at
Rs.100. If there are 34 days to maturity, what is the value of the instrument on its books? [Ans:
Rs.98.225]
Question-13A [SP] A mutual fund holds a 90 days commercial paper. issued at Rs. 92.72,
redeeming at Rs.100. 45 days later. What is the value of the instrument on its books? [Ans:
Rs.96.36]
Question-14 A mutual fund scheme has 1 m units outstanding. As on 31.03.2007, its assets and
liabilities regarding the scheme are as follows:
(a) Market value of listed and traded shares and debentures Rs.50m
(b) Unlisted shares: 10000 equity shares of Rs.10 each of ABC Ltd. EPS of ABC is Rs.10. PE ratio
of a similar listed and traded company (say XYZ) is 12.
(c) Listed but not traded debentures: 1000 9% debentures of ABC Co Ltd, face value Rs.1000,
YTM of similar listed and traded debenture (say XYZ) is 9.5%
(d) Cash and cash equivalent Rs.3m
(e) Outstanding expenses Rs.0.10m
Question-15 [Nov-2009] [M-8] [ICWA-Ch-2-3] A mutual fund made an issue of 10,00,000

units of Rs.10 each on January 01, 2000. No entry load was charged. It made the following
investments.
Rs.
50,000 Equity shares of Rs. 100 each @ Rs. 160 80,00,000
7% Government Securities 8,00,000
9% Debentures (Unlisted) 5,00,000
10% Debentures (Listed) 5,00,000
98,00.000
During the year, dividends of Rs.12,00,000 were received on equity shares, Interest on
all types of debt securities was received as and when due, At the end of the year equity
shares and 10% debentures are quoted at Rs.175 and Rs.90 respectively. Other
investments are at par.
Find out the Net Asset Value (NAV) per unit given that operating expenses paid during the year
amounted to Rs.5,00,000, Also find out the NAV, if the Mutual fund had distributed a dividend of
Re. 0.80 per unit during the year to the unit holders.
Question-16 [May-2010] [M-6] Based on the following information, determine the NAV of a
regular income scheme on per unit basis:
Rs. Crores
Listed shares at cost (ex-dividend) 20
Cash in hand 1.23
Bonds and debentures at cost 4.3
Of these, bonds not listed and quoted 1
Other fixed interest securities at cost 4.5
Dividend accrued 0.8
Amount payable in shares 6.32
Expenditure accrued 0.75
Number of units (Rs.10 face value) 20 lacs
Current realizable value of fixed income securities of face value of Rs.100 106.5
The listed shares were purchased when index was 1,000
Present index is 2,300
Value of listed bonds and debentures at NAV date 8
There has been a diminution of 20% in unlisted bonds and debentures. Other fixed interest
securities are at cost.
Question-16A [May-2014] [M-8] [SP] Based on the following data, estimate the net assets
value (NPV) on per unit basis of a Regular Income Scheme of a Mutual Fund:
Rs.(in lakhs)
Listing Equity shares at cost (ex-dividend) 40.00
Cash in hand 2.76
Bond & Debentures at cost 8.96
of these, Bond not listed & Not quoted 2.50
Dividend accrued 1.95
Amount payable on shares 13.54
Current realizable value of fixed income securities of the face value of Rs. 100 is Rs. 96.50.
Number of units (Rs.10 face value each) : 275000
All the listed equity shares were purchased at a time when market portfolio index was 12,500. On
NAV date, the market portfolio index is 19,975.
There has been a diminution of 15% in unlisted bonds and debenture valuation.
Listed bonds and debentures carry a market value of Rs. 7.5 lakhs, on NAV date.
Operating expenses paid during the year amounted to Rs. 2.24 lakhs.
Question-16B [SM-1]
Question-17 [May-2011] [Accounts] [M-5] Calculate the NAV of a mutual fund from the
following information.
1.4.2009 outstanding units 1 crore of Rs.10 each
Rs.10 crores [NAV Rs.16 crores]
Other information
(i) 20 lakhs units were sold during the year at Rs.24 per unit
(ii) No additional investments were made during the year and as at the year end 50% of the
investments held at the beginning of the year were quoted at 80% of book value.
(iii) 10% of the investments have declined permanently 10% below cost.
(iv) At the year end 31.03.2010 outstanding liabilities were Rs.1 Crore.
(v) Remaining investment were quoted at Rs.13 crores.
Question-17A [Nov-2009] [M-8] [N] [Accounts] A Mutual fund raised 100 lakh on April 1,
2009 by issue of 10 lakhs units of Rs. 10 per unit. The fund invested in several capital market
instruments to build a portfolio of Rs. 90 lakhs. The initial expenses amounted to Rs. 7 lakhs.
During April, 2009, the fund sold certain securities of cost Rs.38 lakhs for Rs.40 lakhs and
purchased certain other securities for Rs. 28.20 lakhs. The fund management expenses for the
month amounted to Rs. 4.50 lakhs of which Rs. 0.25 lakhs was in arrears. The dividend earned
was Rs.1.20 lakhs. 75% of the realized earning were distributed. The market value of the
portfolio on 30.04.2009 was Rs. 101.90 lakh. Determine NAV per unit.
Question-18 [May-2013] [M-8] [RTP-Nov-2014-16] On 1-4-2012 ABC Mutual Fund issued

20 lakh units at Rs.10 per unit. Relevant initial expenses involved were Rs.12 lakhs. It invested
the fund so raised in capital market instruments to build a portfolio of Rs.185 lakhs. During the
month of April 2012 it disposed off some of the instruments costing Rs.60 lakhs for Rs.63 lakhs·
and used the proceeds in purchasing securities for Rs.56 lakhs. Fund management expenses for
the month of April 2012 were Rs.8 lakhs of which 10% was in arrears. In April 2012 the fund
earned dividends amounting to Rs.2 lakhs and it distributed 80% of the realized earnings. On 30-
4-2012 the market value of the portfolio was Rs.198 lakhs. Mr. Akash, an investor, subscribed to
100 units on 1-4-2012 and disposed off the same at closing NAV on 30-4-2012. What was his
annual rate of earning?
Question-19 [May-2012] [M-8] [RTP-Nov-2013-10] Mutual Fund Co. has the following
assets under it on the close of business as on:
Company No of Shares 01.02.2012 02.02.2012
Market price per shares Market price per shares
L Ltd 20000 Rs.20 Rs.20.50
M Ltd 30000 Rs.312.40 Rs.360.00
N Ltd 20000 Rs.361.20 Rs.383.10
P Ltd 60000 Rs.505.10 Rs.503.90
Total no if units 600000
(i) Calculate Net Assets Value (NAV) of the Fund.
(ii) Following information is given:
Assuming one Mr. A, submits a cheque of Rs.30,00,000 to the Mutual Fund and the Fund
manager of this company purchases 8,000 shares of M Ltd; and the balance amount is held in
Bank. In such case, what would be the position of the Fund?
(iii) Find new NAV of the Fund as on 2nd February 2012.
Question-19A [RTP-Nov-2011] [SP] On 1st April 2009 Fair Return Mutual Fund has the
following assets and prices at 4.00 p.m.
Shares No. of Shares Market Price Per Share (Rs.)
A Ltd. 10000 19.70

B Ltd. 50000 482.60
C Ltd. 10000 264.40
D Ltd. 100000 674.90

E Ltd. 30000 25.90
No of Units fund = 800000

Please calculate:
(a) NAV of the Fund.
(b) Assuming Mr. X, a HNI, send a cheque of Rs.50,00,000 to the Fund and Fund manager
purchases 18000 shares of C Ltd and the balance is held in bank. Then what will be position
of fund.
(c) Now suppose on 2 April 2009 at 4.00 p.m. the market price of shares is as follows:
Shares Rs.
A Ltd. 20.30
B Ltd. 513.70
C Ltd. 290.80
D Ltd. 671.90
E Ltd. 44.20
Then what will be new NAV.
9.6 Calculation of Premium/ Discount on NAV in compare to Market price of

Units of MF
ICAI RTP ICWA ICSI
(a) In case of listed Units, MP of Units may be different from its NAV.
(b) If MP>NAV, then Units are said at Premium over NAV
(c) If MP<NAV, then Units are said at Discount under NAV
(d) Calculation of Premium/ Discount on NAV = (MP-NAV)*100/NAV
(e) If MP and Premium/Discount is given then, NAV can be calculated as follows

NAV = MP/(1+Premium) or MP/(1-Discount)
Question-20 A close ended MF is listed at BSE. Its market price is Rs.50 per unit. The assets
under the management of the MF are worth Rs.480m and the liabilities are Rs.1m. The number
of units outstanding are 10m. What is NAV of the unit of MF? What is premium or discount over
NAV?
Question-21 Mr A invested Rs.1000 in close ended MF. NAV at the time of investment was Rs.15
and it was being traded in the stock exchange at a premium of 1%. During the year the fund paid
a dividend of Rs.2 per unit. The investor sold the investment in the stock exchange after
receiving the dividend. His return is 20% p.a. Assume that at the time of sale in the stock
exchange i.e six months after the date of investment, the units were being traded in the market
at 2% discount. What was the NAV at the time of sale.
9.7 Calculation of Return of Various type of Scheme of MF

ICAI RTP ICWA ICSI
N-05 M-12
N-08-O M-08
N-10-O M-10
Question-22 [Nov-2005] [M-12] [ICWA-CH-2-27, 28] Sun Moon Mutual Fund (Approved
Mutual Fund) sponsored open-ended equity oriented scheme "Chanakya Opportunity Fund".
There were three plans viz. 'A'-Dividend Re-investment Plan, 'B'-Bonus Plan & 'C'-Growth Plan.
At the time of Initial Public Offer on 1-4-1995, Mr. Anand, Mr. Bacchan & Mrs. Charu, three
investors invested Rs.1,00,000 each & chosen 'B', 'C’ & 'A' Plan respectively.
The History of the Fund is as follows:
Date Dividend % Bonus Ratio Net Asset Value per Unit
Plan A Plan B Plan C
28-07-1999 20 30.70 31.40 33.42
31-03-2000 70 5:4 58.42 31.05 70.05
31-10-2003 40 42.18 25.02 56.15
15-03-2004 25 46.45 29.10 64.28
31-03-2004 1:3 42.18 20.05 60.12
24-03-2005 40 1:4 48.10 19.95 72.40
31-07-2005 53.75 22.98 82.07
On 31st July all three investors redeemed all the balance units. Calculate annual rate of return to
each of the investors.
Consider:
(a) Long-term Capital Gain is exempt from Income tax.
(b) Short-term Capital Gain is subject to 10% Income tax.
(c) Security Transaction Tax 0.2 percent only on sale/redemption of units.
(d) Ignore Education Cess.
Question-22A [Nov-2008-O] [M-8] [SP] T Ltd. has promoted an open-ended equity oriented
scheme in 1999 with two plans Dividend Reinvestment Plan (Plan-A) and a Bonus Plan (Plan-B);
the face value of the units was Rs.10 each X and Y invested Rs.5,00,000 each on 1.4.2001
respectively in Plan-A and Plan-B, when the NAV was Rs.42.18 for Plan A and Rs.35.02 for Plan-
B. X and Y both redeemed their units on 31.3.2008. Particulars of dividend and bonus declared
on the units over the period were as follows:
Date Dividend Bonus NAV
Ratio Plan A Plan B
15.9.2001 15 - 46.45 29.10
28.7.2002 - 1:6 42.18 30.05
31.3.2003 20 - 48.10 34.95
31.10.2003 - 1:8 49.60 36.00
15.3.2004 18 - 52.05 37.00
24.3.2005 - 1:11 53.05 38.10
27.3.2006 16 - 54.10 38.40
28.2.2007 12 1:12 55.20 39.10
31.3.2008 - - 50.10 34.10
Consider:
(a) Long-term Capital Gain is exempt from Income tax.
(b) Short-term Capital Gain is subject to 10% Income tax.
(c) Security Transaction Tax 0.2 percent only on sale/redemption of units.
Question-22B [Nov-2010-O] [M-10]

9.8 DIVIDEND EQUALISATION
ICAI RTP ICWA ICSI
M-09 M-06
N-15 M-08
New investors are not entitled to any share of the income of a mutual fund scheme which arose
before they bought their units. However, at the end of each distribution period the fund
management allocates the same amount from the income of the fund to each unit. To
compensate for this an equalisation payment is added to the cost of new units. This is the
amount of income that has arisen up to the date of purchase of the unit. Because these
payments are included in the amount available for distribution they are effectively repaid to the
purchaser. The purchaser's dividend voucher at the end of the first distribution period should
show the amount of the returned equalisation payment.
In the case of an open – ended scheme, when units are sold an appropriate part of the sale
proceeds should be credited to an Equalisation Account and when units are repurchased an
appropriate amount should be debited to Equalisation Account. The net balance on this account
should be credited or debited to the Revenue Account. The balance on the Equalisation Account
debited or credited to the Revenue Account should not decease or increase the net income of the
fund but is only an adjustment to the distributable surplus. It should, therefore, be reflected in
the Revenue Account only after the net income of the fund is determined.
Question-23 [SM] On April 1, 2009 a mutual fund scheme had 9 lakh units of face value Rs. 10
outstanding. The scheme earned Rs. Rs. 81 lakh in 2009-10, out of which Rs. 45 lakh was earned
in first half year. 1 lakh units were sold on 30.09.09 at NAV Rs.60. Show important accounting
entries for sale of units and distribution of dividend at the end of 2009-10.
Question-23A [May-2009] [M-6] [N] [Accounts] On 1.4.2008, a mutual fund scheme had
18 lakhs unit of face value of Rs.10 each was outstanding. The scheme earned Rs.162 lakhs in
2008-09, out of which Rs.90 lakhs was earned in the first half of the year. On 30.9.2008, 2 lakhs
units were sold at a “NAV” of Rs.70.
Pass journal entries for sale of units and distribution of divided at the end of 2008-09.
Question-24 [Nov-2015] [M-8] On 1st April, an open ended Scheme of Mutual Fund had 300
Lakh units outstanding with Net Assets Value (NAV) of Rs.18.75. At the end of April, it issued 6
Lakh units at Opening NAV plus 2% load, adjusted for Dividend Equalization. At the end of May, 3
Lakh units were repurchased at Opening NAV less 2% Exit Load adjusted for Dividend
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 Lacs
Portfolio Value Appreciation 425.47
Income of April 22.950
Income of May 34.425
Income of June 45.450
You are required to calculate

1. Income available for Distribution,
2. Issue Price at the end of April,
3. Repurchase Price at the end of May, and
4. Net Asset Value (NAV) as on 30th June.
9.9 Theory
ICAI RTP ICWA ICSI
M-03 M-06 N-15
N-03 M-06
M-04 M-04
N-04 M-06
N-05 M-08
M-07 M-04
N-08 M-04
M-09 M-05
M-10 M-04
N-10 M-04
N-11 M-04
N-13 M-04
N-14 M-04
M-15 M-04
Question-1 [May-2004] [M-4] [Nov-2004] [M-6] Explain briefly about net asset value (NAV)
of a Mutual Fund Scheme.
Solution
9.2.1 Calculation of Net Asset Value of Units of Mutual Fund

(a) This is the value per unit of a scheme on a particular day called the valuation day. It is the
value of net assets of the fund. The investors' subscription is treated as the capital in the
balance sheet of the fund and the investments on their behalf are treated as assets. The
NAV is calculated for every scheme of the MF individually.
(b) There are three aspects which need to be highlighted:

(i) It is the net value of all assets less liabilities. NAV represents the market value of total
assets of the Fund less total liabilities attributable to those assets.
(ii) NAV changes daily. The value of assets and liabilities changes daily.
(iii) NAV is computed as a value per unit of holding.
(c) Calculation of NAV of units of Mutual Fund
NAV per unit = (Net assets of the scheme)/ Number of units outstanding
OR
(Value of portfolio of the scheme + other assets of the scheme - Liabilities of the scheme)
Number of units outstanding under the scheme
Net assets of the scheme =
Market value of traded investments + Estimated value of non traded listed securities + Estimated
value of unlisted securities + Receivables + Accrued Income + Other Assets - Accrued Expenses -
Payables - Other liabilities
(d) NAV of M/F Scheme is published on a daily basis in the newspapers and electronic media
and play an important role in investors' decision to enter or to exit.
Question-2 [May-2009] [M-5] [May-2007] [M-4] Explain briefly the advantages of investing
in mutual funds.
Solution
The advantages of investing in mutual funds are as under:
1. Professional Management Investors can avail of the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses performance and prospects of companies to select suitable
investments.
2. Diversification Mutual funds invest in a number of companies across a broad cross section of industries and sectors.
Investors achieve this diversification with far less money and risk they could do on their own.
3. Return potential Over a medium to long term, mutual funds have the potential to provide ,a higher return as the
investments are diversified. .
4. Low costs Mutual funds are a less expensive way to invest as compared with direct investment in the capital market.
5. Liquidity In open-ended schemes, investors get money promptly at NAV from the mutual fund itself. In close-ended
schemes, investors- can sell units on a stock exchange at the prevailing market price or avail of direct repurchase at NAV-
related prices which some such schemes offer periodically.
6. Transparency Investors get regular information on the value of their investments.
Question-3 [May-2010] [M-4] [Nov-2013] [M-4] [RTP-Nov-2015] Briefly explain what is

an exchange traded fund
Solution
Exchange traded Funds(EFTs) were introduced in US in 1993 and came to india around 2002. ETF is a hybrid product that
combines the features of an index fund and stock and hence, is also called index shares. These funds are listed on the
stock exchanges and their prices are linked to the underlying index. The authorized participants act as markers for ETFs.
ETF can be bought and sold like any other stock on exchange. In other words, they can be bought or sold any time during
the market hours at prices that are expected to be closer to the NAV at the end of the day. NAV of an EFT is the value of
the underlying component of the benchmark index by held by the EFT plus all accrued dividends less accrued
management fees.
There is no paper work involved for investing in an ETF. These can be bought like any other stock by just placing an order
with a broker.
Some other important features of ETF are as follows:
(a) It gives an investor the benefits of investing in a commodity without physically purchasing the commodity like
gold,silver, sugar etc.
(b) It is launched by an asset managment company or other entity.
(c) The investor doesnot need to physically store the commodity or bear the costs of upkeep which is part of the
administrative costs of the fund.
(d) An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought or sold at the
end of each trading day for its net assets value, with the tradability feature of a closed end fund, which trades
throughout the trading day at prices that may be more or less than its net assets value.
Question-4 [May-2015] [M-4] [Nov-2010] [M-4] Distinguish between Open

Ended and Close Ended Schemes
Open Ended Scheme do not have maturity period. These schemes are available for subscription
and repurchase on a continuous basis. Investor can conveniently buy and sell unit. The price is
calculated and declared on daily basis. The calculated price is termed as NAV. The key feature of
the scheme is liquidity.
Close ended scheme has a stipulated maturity period normally 5 to 10 years. The scheme is open
for subscription only during the specified period at the time of launce of the scheme. Investor can
invest of at the time of initial issue and there after they can buy or sell from stock exchange
where the scheme is listed. To provide an exit rout some close ended schemes give an option of
selling bank (repurchase) on the basis of NAV. The NAV is generally declared on weekly basis.
Question-5 [May-2003] [M-6] Write short notes on the role of Mutual Funds in the Financial
Market.
Solution
Role of mutual funds in the financial market :
(a) Mutual funds have opened new vistas to investors and imparted much needed liquidity to the system In this process,
they have challenged the hitherto dominant role of the commercial banks n the financial market and national
economy.
(b) IN 997, the share of mutual funds in house-hold financial assets was over 5% in USA, 8% in Germany, 3% in Japan,
3% in Italy and about 5% in India. In India, there has been a steady increase in the share of mutual funds in house-
hold savings since 1988-89, i.e. after the entry of public sector mutual funds. The most significant growth during
1980-81 to 1992-93 was in respect of UTI.
(c) According to Centre for Monitoring Indian Economy, "Mutual Funds" cornered 12% of the total market capitalization,
the share of the UTI being 9.4% of the total market capitalization of Indian stock markets in 1994.
(d) According to the flow of funds statistics published by the RBI, the share of banking sector in filling the resource gap
of the corporate sector has declined from 54.42% in 1988-89 to 2.3% in 1991-92, while of the other financial sector
(including mutual funds) has increased from '39.9% to 102.58%.
Question-6 [Nov-2003] [M-6] Explain how to establish a Mutual Fund.

Solution: Establishment of a Mutual Fund: A mutual fund is required to be registered with the Securities and
Exchange Board of India (SEBI) before it can collect funds from the public. All mutual finds are governed by the same set
of regulations and are subject to monitoring and inspections by the SEBI. The Mutual Fund has to be established through
the medium of a sponsor. A sponsor means any body corporate who, acting alone or in combination with another body
corporate, establishes a mutual fund after completing the formalities prescribed in the SEBI’s Mutual Fund Regulations.
The sponsor should have a sound track record and general reputation of fairness and integrity in all his business
transactions.
The Mutual Fund has to be established as either a trustee company or a Trust, under the Indian Trust Act and the
instrument of trust shall be in the form of a deed. The deed shall be executed by the sponsor in favour of the trustee
named in the instrument of trust. The trust deed shall be duly registered under the provisions of the Indian Registration
Act, 1908. The trust deed shall contain clauses specified in the Third Schedule of the Regulations.
An Asset Management Company, who holds an approval from SEBI, is to be appointed to manage the affairs of the Mutual
Fund and it should operate the schemes of such fund. The Asset Management Company is set up as a limited liability
company, with a minimum net worth of Rs. 10 crores.
The sponsor should contribute at least 40% to the networth of the Asset Management Company. The Trustee should hold
the property of the Mutual Fund in trust for the benefit of the unit holders.
SEBI regulations require that at least two-thirds of the directors of the trustee company or board of trustee must be
independent, that is, they should not be associated with the sponsors. Also, 50 per cent of the directors of AMC must be
independent
Question-7 [Nov-2005] [M-8] What are the investors’ rights & obligations under the Mutual
Fund Regulations? Explain different methods for evaluating the performance of Mutual Fund.
Solution: Investors’ right and obligations under the Mutual Fund Regulations:
Important aspect of the mutual fund regulations and operations id the investors’ protection and disclosure norms. It
serves the very purpose of mutual fund guidelines. Due to these norms it is very necessary for the investor to remain
vigilant. Investor should continuously evaluate the performance of mutual fund
Following are the steps taken for improvement and compliance of standards of mutual fund:
All mutual funds should disclose full portfolio of their schemes in the annual report within one month of the close of each
financial year. Mutual fund should either send it to each unit holder or publish it by way of an advertisement in one
English daily and one in regional language.
The Asset Management Company must prepare a compliance manual and design internal audit systems including audit
committee of the launch if any schemes. The trustees are also required to constitute an audit committee of the trustees,
which will review the internal audit systems and the recommendation of the internal and statutory audit reports and
ensure their rectification.
The AMC shall constitute an in-house valuation committee constituting of senior executives including personnel from
accounts, fund management and compliance departments. The committee would on a regular basis review the system
practice of valuation of securities.
The trustee shall review all transactions of the mutual fund with association on a regular basis.
Investors’ Rights:
Unit holder have propionate right in the beneficial ownership of the schemes assets as well as any dividend or income
declared under the scheme.
Receive dividend warrant with in 42 days.
AMC can be terminated by 75% of the unit holders.
Right to inspect major documents i.e. material contracts, Memorandum of Association and Articles of Association (M.A. &
A.A) of the AMC, Offer document etc.
75% of the unit holders have the right to approve any changes in the close-ended scheme.
Every unit holder have right to receive copy of the annual statement.
Legal limitations to investors’ rights:
Unit holders cannot sue the trust but they can initiate proceedings against the trustees, if they feel that they are being
cheated.
Except in certain circumstances AMC cannot assure a specified level of return to the investors. AMC cannot be sued to
make good any shortfall in such schemes.
Investors’ Obligations:
An investor should carefully study the risk factors and other information provided in the offer document. Failure to study
will not entitle him for any rights thereafter.
It is the responsibility of the investor to monitor his schemes by studding the reports and other financial statements of
the funds
Question-8 [Nov-2008] [M-4] [New] What are the drawbacks of investments in Mutual
Funds?
Solution
DRAWBACKS OF INVESTMENT IN MUTUAL FUNDS
There is no guarantee of return as some Mutual Funds may under perform and Mutual Fund Investment may depreciate in
value which may even effect erosion / Depletion of principal amount
Diversification may minimize risk but does not guarantee higher return.
Mutual funds performance is judged on the basis of past performance record of various companies. But this can not take
care of or guarantee future performance.
Mutual Fund cost is involved like entry load, exit load, fees paid to Asset Management Company etc.
There may be unethical Practices e.g. diversion of Mutual Fund amounts by Mutual Fund /s to their sister concerns for
making gains for them.
MFs, systems do not maintain the kind of transparency, they should maintain
Many MF scheme are, at times, subject to lock in period, therefore, deny the market drawn benefits
At times, the investments are subject to different kind of hidden costs.
Redressal of grievances, if any, is not easy
Question-9 [Nov-2011] [M-4] Write short notes on Money Market Mutual Fund
Solution:
An import part of financial market is Money Market. It is a market for short term money. It plays
a crucial role in maintaining the equilibrium between the short term demand and supply of
money. Such scheme invest in safe highly liquid instruments included in commercial papers
certificate of deposits and government securities.
Accordingly, MMF scheme generally provide high return and highest safety to the ordinary
investor. MMMF schemes are active players of the money market. They channalise the idle short
funds, particularly of corporate world. To those who require such fund. This process helps those
who have idle funds to earn some income without taking any risk and with surety that whenever
they need their funds, they will get the same. Short term requirements of various firms are met
by such mutual funds. Participant of such mutual funds provide a boost to money market and
help in controlling the volatility.
Question-10 [Nov-2014] [M-4] What are the signals that indicate that is time for an investor
to exit a mutual fund scheme
Solution
(a) When the mutual fund consistently under performs the broad based, it is high time that it
should get out of the scheme.
(b) When the mutual fund consistently under performs its peer group instead of its being at the
top. In such a case, it would have to pay to get out of the scheme and then invest in the
winning schemes.
(c) When the mutual fund changes its objectives its e.g instead of providing a regular income to
the investor, the composition of the portfolio has changed to a growth fund mode which is
not in tune with the investors risk preferences.
(d) When the investor changes his objectives of investing in a mutual fund which no longer is
beneficial to him.
(e) When the fund manager, handling the mutual fund schemes, has been replaced by a new
entrant whose image is not known.
Chap–9 MUTUAL FUND-SOLUTION 9C.1
Solution-1
Solution-1A
Company No. of Shares Market Price Per Share Value of Assets/Liabilities
Nairobi Ltd 25000 Rs 20 500000
Dakar Ltd 35000 Rs 300 10500000
Senegal Ltd 29000 Rs 380 11020000
Cairo Ltd 40000 Rs 500 20000000
Accrued Expenses (250000)
Liabilities (200000)
Net Assets 41570000
No of Units 1000000
NAV 41.57
Solution-2
(a)
NAV0 = Rs.50; NAV1 = Rs.55; D1 = Rs.4; Capital Gain1 = Rs.3
First year Return from Units = (NAV1 + Dividend distribution + capital gain distribution – NAV0)/NAV0
= [(55 + 4 + 3 – 50)*100]/50 = 12*100/50 = 24%
(b) Next Year

% return during 2nd year = (50 + 5 + nil – 55)*100)/55 = 0%
Solution-2A
NAV0 = Rs.20; NAV1 = Rs.20.06; D1 = Rs.0.0375; Capital Gain1 = Rs.0.03
% monthly return = (NAV1 + Dividend + capital gain – NAV0)/ NAV0

Monthly Return = (20.06 + 0.0375 + 0.03 - 20)/20 = 0.006375 = 0.6375%
Annual Return = 0.6375*12 = 7.65% p.a.
Solution-3
NAV0 = Rs.20.425; NAV1 = Rs.21.85; D1 = Rs.10*17.5% = Rs.1.75; Capital Gain1 = Rs.0
% return = (NAV1 + Dividend + capital gain – NAV0)/ NAV0

Return = (21.85 + 1.75 + 0 – 20.425)/20.425 = 0.155447 = 15.54%
Same Type of Question in ICWA

[ICWA-Ch-2-5], [ICWA-Ch-2-7], [ICWA-Ch-2-11]
Solution-4
MF-A MF-B MF-C
Amount invested 50,000 1,00,000 50,000
N.A.V. at entry Date 10.50 10 10
No of units purchased 4761.90 10,000 5,000
Total Dividend received 950 1500 Nil
Dividends per units 950/4761.90 1500/10,000 -
= 0.1995 = 0.15 -
N.A.V. at end of year =Re.10.40 Re.10.10 Re.9.80
% periodic return (10.40+0.1995–10.50)/10.5 (10.10+0.15-10)/10 (9.80+0-10)/10
= 0.9476% 2.5% -2%
Period Dec – March Jan – March March
= 4 month = 3 month = one month
Annualised Return 0.9476*12/4 2.5*12/3 (-2)*12%
= 2.8428% = 10% = (-) 24%
Solution-4A
Calculation of effective yield on per annum basis in respect of three mutual fund schemes to Mr. Sinha up to 31-03-2009:
Particulars X Y Z
Investment Rs.5,00,000 Rs.1,00,000 Rs.50,000
NAV as on date of Entry 10.50 10.00 10.00
No of Units Purchased 47,619.05 10,000 5,000
Dividends per units 9500/47619.05 1500/10,000 -
= 0.1995 = 0.15 -
N.A.V. at end of year 31.03.2009 =Re.10.40 Re.10.10 Re.9.80
% periodic return (10.40+0.1995-10.50)/10.50 (10.10+0.15-10)/10 (9.80+0-10)/10
=0.9476% 2.5% -2%
Period Dec – March Jan – March March
= 4 month = 3 month = one month
Annualised Return 0.9476*12/4 2.5*12/3 -2%*12/1
= 2.84% = 10% = (-) 24%
Solution-5
(a) Option -1 if Dividend is paid
NAV0 = Rs.8.75; NAV1 = Rs.9.45; D1 = Rs.0.75; Capital Gain1 = Rs.0.60
% Total return = (NAV1 + Dividend distribution + capital gain distribution – NAV0)/NAV0

= (9.45 + 0.75 + 0.60 – 8.75)/8.75 = 0.2342 = 23.42%
(b) When all dividends and capital gains distributions are re-invested into additional units of the fund @ (Rs. 8.65/unit)
Dividend + Capital Gains per unit = Re.0.75 + Re 0.60 = Rs. 1.35
Total Amt received from 300 units = Rs.1.35 x 300 = Rs.405/-
Additional Units Acquired = Rs.405/Rs.8.65 = 46.82 Units.
Total No of Units at the end of the year = 300 units + 46.82 units = 346.82 units.
Closing Value of 346.82 units held at the end of the year = 346.82*9.45 = Rs.3277.45
Price Paid for 300 Units at the beginning of the year = 300*8.75 = Rs.2,625.00
% Return on units of MF = (Closing Investment – Opening Investment)/Opening Investment % of Return
= (3277.45 - 2625.00)/2625 = 0.24855 = 24.855%
Conclusion: Since the holding period reward is more in terms of percentage in option-two i.e., reinvestment of
distributions at an average NAV of Rs.8.65 per unit, this option is preferable.
Solution-5A
(i)

= (48 + 1 + 2 – 45)/45 = 0.1333 = 13.33%
(ii) Total Dividend and Capital gain = (1+2)*200 = Rs.600

No of units purchase by investing dividend and capital gains = 600/46 = 13.04
Total no of Units at the end of the year = 213.04
NAV at the end of the year = Rs.48
Closing Value of Investment at the end of the year = 213.04*48 = Rs.10225.92
Purchase price of 200 units at the beginning of the year = 200*45 = Rs.9000
= (10225.92 – 9000)/9000 = 13.62%
Solution-6
(a) NAV0 = Rs.65.78; D1 = Rs.0.50; Capital Gain1 = Rs.0.32; Annualise Return = 15%
Monthly return = 15%/12 = 1.25%
0.0125 = (NAV1 + 0.50 + 0.32 – 65.78)/65.78
0.0125*65.78 = NAV1 - 64.96
NAV1 = 64.96 +0.822 = 65.78
(b) There is no change in NAV
Solution-7
For the year 2012-2013
Investment Date = 01/07/2012
Amt of Investment = Rs.100000
NAV as on 01/07/2012 = Rs.10
Dividend = 10% = Rs.100000*10% = Rs.10000
eld for 9 months = 115%
Return for 9 months
= (Closing Value of Investment + Dividend – Initial Investment)/ Initial Investment
1.15 = (Closing Value of Investment + 10000 – Rs.100000)/10000
Closing Value of 10000 units = 115000+100000 - 10000= Rs.205000
NAV as on 31.03.2013 = Value of Investment/No of units = 205000/10000 = Rs.20.05
If Dividend is reinvested on 31/03/2013 at NAV = Rs.20.05
Therefore, no of units as on 31.03.2013 = 215000/20.05 = 10487.80

Dividend as on 31.03.2014 = 20% = 10,487.80*10x20% = Rs.20,975.60
No of Units sold on 31.3.2015 = 11296.11
Hence no of units purchased during 2001-02 by reinvesting dividend of 2013-14 = 11296.11-10487.80 = 808.31 units
Therefore, NAV as on 31.03.2014 = Amt of Dividend/ No of Units purchased = 20975.6/808.31 = Rs.25.95

As per Suggested
Holding Period return = 202.18%
Value of Investment as on 01/07/2012 = Rs.100000
Value of Investment as on 31/03/2015 = ?
Return =
(Value of Investment at end of period–Value of Investment at beginning of period)/Investment at the beginning of period
Value of Investment at end of period–100000/100000 = 2.0218
Value of Investment at end of period = 2.0218*100000 + 100000 = 302180
NAV as on 31/03/2015 = Value of Investment at end of period/No of Units = 302180/11296.11 = 26.75
Solution-7A
NAV as on 01/07/2000 = Rs.10
Dividend = 10% = Rs.100000*10% = Rs.10000
Annualised yield for 2000-01 = 153.33%
Yield for 9 months = (153.33 x 9/12) = 115%
Return for 9 months
1.15 = (Closing Value of Investment + 10000 – Rs.100000)/10000
NAV as on 31.03.2001 = Value of Investment/No of units = 205000/10000 = Rs.20.05
If Dividend is reinvested on 31/03/2001 at NAV = Rs.20.05
Therefore, no of units as on 31.03.2001 = 215000/20.05 = 10487.80

Dividend as on 31.03.2002 = 20% = 10,487.80*10x20% = Rs.20,975.60
Therefore, NAV as on 31.03.2002 = Amt of Dividend/ No of Units purchased = 20975.6/808.31 = Rs.25.95

As per Suggested
Annualised Return = 73.52% [Assuming for the period 01/07/2000 to 31/03/2003]
Return for the period 01/07/2000 to 31/03/2003 = 73.52*33/12 = 202.18
Return =
(Value of Investment at end of period–Value of Investment at beginning of period)/Investment at the beginning of period
Value of Investment at end of period–100000/100000 = 2.0218
Value of Investment at end of period = 2.0218*100000 + 100000 = 302180
NAV as on 31/03/2003 = Value of Investment at end of period/No of Units = 302180/11296.11 = 26.75
Alternative Answer
NAV0 = Rs.25.95; NAV1 = ?; D1 = Rs.0; Capital Gain1 = Rs.0
Annualised Return = 73.52% [Assuming for the year 2002-03]
Annualised Return
= (NAV at year end + Dividend + capital gain – NAV at the beginning)/NAV at beginning
0.7352 = (NAV at year end + 0 + 0 – 25.95)/25.95 = 0.2647 = 26.47%
(NAV at year end + 0 + 0 – 25.95) = 19.07
NAV at year end = 19.07 + 25.95 = 45.02
Solution-8
The investors may invest in own equity i.e. own business and get a return of 14%.
The investor may invest in mutual fund
Initial expenses of mutual fund is 6%
The return to mutual fund on money invested by Fund in market = 16.5%
There is besides recurring expenses p.a. the investor wants to be indifferent i.e. the return to investor is 14%. Whether
he invests in mutual fund or own investment.
At matching position
Return from own investment = (Return to mutual Fund – Recurring exp) x (1- Issue cost)
14 = (16.5 – Recurring exp) x (1 –0.06)
14 = (16.5 – Recurring exp)*0.94
Recurring exp = 16.5 – 14/.94 = 16.5 – 14.89 = 1.617%
Comments: If MF earns 16.45%, then its effective return will be 14% after issue and recurring exp.
Solution-8A
Return from own investment = 16%
Initial exp = 5.5%
Recurring exp = 1.5%
Return to mutual fund = ?
At Indifferent Point
Return from own investment = (Return to mutual fund – Annual Recurring exp)*(1- 1 Issue exp)
16 = (Return to mutual fund - 1.5)*(1 - 0.055)
16 = (Return to mutual fund - 1.5)*0.945
Return to MF = 16/0.945 + 1.5 = 18.43%
Solution-8B
Return from own investment = 10%
Initial exp = 6%
Recurring exp = 2%
Return of mutual fund =?
At Indifferent Point
Return from own investment = (Return to mutual fund – Annual Recurring exp)*(1- 1 Issue exp)
10 = (Return of mutual fund - 2)*(1 - 0.06)
10 = (Return to mutual fund - 2)*0.94
Return of MF = 10/0.94 + 2 = 12.63%
Solution-9
NAV = Rs.25.875
Entry Load = 1.75%
Exit Load = 0.50%
Purchase cost per unit to investor = NAV as on date of Purchase + Entry Fees = 25.8750 + 25.8750*1.75% = Rs.26.327
Sale price per Unit = NAV as on date of sale – Exit Load = 25.8750 - 25.8750*0.5% = Rs.25.746
Solution-9A
NAV = Rs.15
Entry Load = 2.25%
Purchase cost per unit to investor = NAV as on date of Purchase + Entry Fees = 15 + 15*2.25% = Rs.15.3375
No of Units to be purchased = 100 units
Total amt required to purchase 100 units = No of units to be purchased*Purchase price per unit
= 100*15.3375 = Rs.1533.75
Solution–10
NAV = Rs.38.125
Entry Load = 2.25%
Exit Load = 0.25%
Purchase cost per unit to investor = NAV as on date of Purchase + Entry Fees = 38.125 + 38.125*2.25% = Rs.38.9828
Sale price per Unit = NAV as on date of sale – Exit Load = 38.125 - 38.125*0.25% = Rs.38.029
Investment Amt = Rs.64000
No of Units that can be purchased = Amt of Investment/Purchase Price per unit = Rs.64000/38.9828 = 1641.75
Solution-11
(a) Time horizon is 1 year
For A
NAV = Rs.10
Entry Load = 2.25%
Return of MF of one year = 12%
Hence NAV at the end of year = Rs.10*1.12 = Rs.11.20
Exit Load = 0%
Sale price per Unit = NAV as on date of sale – Exit Load = Rs.11.20
Annual Return = (Sale – Purchase Cost)/Purchase Cost = (11.20 – 10.225)/10.225 = 9.535%
For B
NAV = Rs.10
Entry Load = 0.90%
Return of MF of one year = 12%
Hence NAV at the end of year = Rs.10*1.12 = Rs.11.20
Exit Load for one year = 0.50%
Sale price per Unit = NAV as on date of sale – Exit Load = Rs.11.20 – 11.20*0.50% = Rs.11.144
Annual Return = (Sale – Purchase Cost)/Purchase Cost = (11.144 – 10.09)/10.09 = 10.44%
Investment B is recommended
Time horizon is 4 year

For A
Return from Investment = 12%
NAV at the end of year 4 = Rs.10*(1.12)4 = Rs.15.7351
Holding period return = (Rs.15.7351 – Rs.10.225)/10.225 = 53.89%
Annual Return [Simple Avg] = 53.89/4 = 13.4725%
For B
Initial Investment = Rs.10.09
Value at the end of year one = Rs.10 x (1.12)4 – Exit Load = Rs.15.7351 x (1 – 0.001) = Rs.15.72
Holding period return = (Rs.15.72 – Rs.10.09)/10.09 = 55.80%
Annual Return = 55.80/4 = 13.95%
Investment B is recommended
Solution-12
No of units purchased = 50
Purchase Cot per unit at the time of investment = Rs.1000/50 = Rs.20
Purchase cost = NAV + Entry Load
Rs.20 = NAV + NAV*0.225
NAV0 = Rs.20/1.0225 = Rs.19.5599
Gross receipts from redemption of investment = Rs.25*50 = Rs.1250
Exit Load = 0.50%
Net redemption proceeds = Rs.1250 – exit fees = Rs.1250 x (1-.005) = Rs.1243.75
Holding period return of 6 months = (1243.75 – 1000)/1000 = 24.375
Annualised return = 24.375*2 = 48.75%
Solution-13
Issue price = Rs.95.25
Redeemable value = Rs.100
Total Interest over 91days = Redemption Value – Issue Price = 100 – 95.25 = 4.25
Value of Investment [After 57 days of issue or before 34 days of maturity) = Issue Price + Accrued Int. of 57 days
= 95.25 + 4.75*57/91 = Rs.98.23
Solution-13A
Issue price = Rs.92.72
Redeemable Value = Rs. 100
Total Interest for 90 days = Redemption Value – Issue Price = 100 – 92.72 = 7.28
Value of Investment [After 45 days of issue or before 45 days of maturity) = Issue Price + Accrued Int. of 45 days
= 92.72 + 7.28 x 45/90 = Rs.96.36
Solution-14
Value of listed and traded shares and debentures = Rs.50m
Valuation of Unlisted Equity Shares

= EPS of Company whose value is to be calculated*PE ratio of Comparable Company after adjustment for risk
= EPS of ABC*(PE ratio of XYZ after adjustment]
Note: PE ration of ABC would be less than that of XYZ because of liquidity of shares of ABC. Let PE ratio of ABC is 11
= Rs.10*11 = Rs.110
No of shares held by MF in ABC = 10000 shares
Market value of 10000 shares of ABC = 1000*110 = Rs.11,00,000.
Value of Non traded Debenture

YTM of Listed and traded debenture = 9.5%
Since ABC Debenture is listed but not traded, hence YTM of ABC would be more than that of XYZ because of illiquidity of
Debenture of ABC. Let YTM of ABC Debenture is 10%
Redemption period of debenture is not given, hence we can assume constant interest for indefinite period
Market value of Debenture = Intt/YTM = 90/0.10 = Rs.900
Market value of 1000 Debenture = 900x1000 = Rs.9,00,000
Value of All Assets and Investment of MF = Rs.50+1.1+0.9+3-0.10 = Rs.54.90 M

No of Units in MF = 1m
NAV = Rs.54.90/1 = Rs.54.90 per unit
Solution-15
In order to find out the NAV, the cash balance at the end of the year is calculated as follows-
Rs
Cash balance in the beginning (Rs.100 lakhs - Rs. 98lakhs) 2,00,000
Dividend Received 12,00,000
Interest on 7% Govt. Securities 56,000
Interest on 9% Debentures 45,000
Interest on 10% Debentures 50,000
15,51,000
(-) Operating expenses 5,00,000
Net cash balance at the end 10,51,000
Calculation of NAV Rs.
Cash Balance 10,51,000
7% Govt. Securities (at par) 8,00,000
50,000 equity shares @ Rs. 175 each 87,50,000
9% Debentures (Unlisted) at cost 10% 5,00,000
Debentures @90% 4,50,000
Total Assets 1,15,51000
No. of Units 10,00,000
NAV per Unit RS.11.55
Calculation of NAV, if dividend of Re.0.80 is paid-
Net Assets (Rs. 1,15,51,000 - Rs. 8,00,000) No. Rs. 1,07,51,000
of Units 10,00,000
NAV per unit Rs. 10.75
Solution-16
Particulars Adjustment value
Rs. Crores
Value of Equity shares = Cost*Today Index/Index on the date of Purchase = Rs.20*2300/1000 46.00
Cash in hand 1.23
Bonds and debentures not listed Rs.1*[1-20% Diminution in Value of Unlisted Bond] 0.80
Bonds and debenture listed [Given] 8.00
Dividends accured 0.80
Fixed income securities [To be taken at cost] 4.50
Sub total assets(A) 61.33
Less: Liabilities
Sub total liabilities(B) 7.07
Net Assets Value(A)-(B) 54.26
No of units 0.2 Cr
Net Assets Value per unit(Rs.54.26 crore/20,00,000 Rs.271.30
Solution-16A
Particulars Adjustment value
Rs. Lacs
Value of Equity shares = Cost*Today Index/Index on the date of Purchase = Rs.40*19975/12500 63.92
Cash in hand 2.76
Bonds and debentures not listed Rs.2.50*[1-15% Diminution in Value of Unlisted Bond] = 2.50*0.85 2.125
Bonds and debenture listed [Given] 7.50
Dividends accrued 1.95
Fixed income securities = 9.75*96.50/100 9.409
Less: Liabilities
No of units 2.75 lacs
Net Assets Value per unit 25.314
Note: Operating expenses of Rs.2.24 lacs paid during the year has already been deducted from cash balance.
Solution-17
No of Units Outstanding as on 01.04.2009 = 1 Cr
Face Value per Unit = Rs.10
Total NAV as on 01.04.2009 = 16 Cr
NAV per Unit = Rs.16Cr/1Cr = Rs.16
During the year 2009-10

No of Further Units issued = 20 lacs
Issue price of Units = Rs.24
Cash Received by MF = 20 lacs*24 = 480 lacs = 4.80 Cr
Total Investment = 16 Cr
(ii) 50% of Investment to be taken at 80% of Value = Rs.16*0.50*80% = 6.40 Cr
(iii) 10% of Investment declined permanently below cost = Rs.16*0.10*0.90 = 1.44 Cr
(iv) 40% of Investment quoted at 13 Cr
(v) Outstanding Liability = Rs.1 Cr
Total Assets of MF as on 31.03.2010 = 4.80+6.40+1.44+13-1 = 24.64 Cr
No of Units = 1.2 Cr
NAV as on 31.03.2010 = 24.64/1.2 = Rs.20.53
Solution-17A
(a)
Rs (Lacs)
Cash Received by selling of 10 lacs units 100
Less: Portfolio Purchased -90
Less: Initial Exp -7
Add: Sale of Security Cost Rs.38 +40
Less: Purchase of Other Security -28.20
Less: Management Exp Paid (4.50-0.25) -4.25
Add: Dividend Received +1.20

11.75
Less: 75% of Realised Profit Paid = 3.20*0.75 -2.4
Net Cash Balance in Hand 9.35

Realised Profit = Profit on sale of Share + Dividend received = 2 + 1.20 = 3.20
Total Assets of MF as on 30.04.2009

Cost of Investment = 90-38+28.20 = 80.20 lacs
Market Value of Portfolio = 101.90
Outstanding Liabilities = 0.25 lacs
Total Assets of MF = Value of Investment + Cash – Liability/No of Units = 101.90+9.35-0.25 = 111 alcs
No of Units = 10 lacs
NAV = 111/10 = 11.10
Solution-18
(a)
Rs (Lacs)
Cash Received by selling of 20 lacs units @10 200
Less: Portfolio Purchased -185
Less: Initial Exp -12
Add: Sale of Security Cost Rs.60 +63
Less: Purchase of Other Security -56
Less: Management Exp Paid (8-0.8) -7.20
Add: Dividend Received +2

4.80
Less: 80% of Realised Profit Paid = 5*0.80 -4.00
Net Cash Balance in Hand 0.80
Realised Profit = Profit on sale of Share + Dividend received = 3 + 2 = 5
Total Assets of MF as on 30.04.2012

Cost of Investment = 185-60+56 = 181 lacs
Market Value of Portfolio = 198 lacs
Outstanding Liabilities = 0.8 lacs
Total Assets of MF = Value of Investment + Cash – Liability/No of Units = (198+0.80-0.80) = 198 lacs
No of Units = 20 lacs
NAV p.u. = 198/20 = 9.90
(b) Calculation of Return of Mr Akash
NAV0 = Rs.10; NAV1 = Rs.9.90; D1 = Rs.4/20 = 0.20; Capital Gain1 = Rs.0
Return from Units = (NAV1 + Dividend distribution + capital gain distribution – NAV0)/NAV0
= [(9.90 + 0.20 + 0 – 10)*100]/10 = 0.10*100/10 = 1%
Solution-19
(i) Computation of NAV of the Fund
Company No of 01.02.2012 01.02.2012 02.02.2012 02.02.2012
Shares Market price per Market Value Market price per shares Market Value
shares
L Ltd 20000 Rs.20 400000 Rs.20.50 410000
M Ltd 30000 Rs.312.40 9372000 Rs.360.00 10800000
N Ltd 20000 Rs.361.20 7224000 Rs.383.10 7662000
P Ltd 60000 Rs.505.10 30306000 Rs.503.90 30234000
Total 47302000 49106000
No of units 600000 600000
NAV 78.84 81.84
(ii) Revised Position

Mr. A gives 30,00,000 [Assuming on 01/02/2012]
Units Issued to Mr A = 3000000/78.84 = 38,052 Units
NAV as on 01/02/2012
Market price per shares Market Value
L Ltd 20000 Rs.20 400000
M Ltd 38000 Rs.312.40 11871200
N Ltd 20000 Rs.361.20 7224000
P Ltd 60000 Rs.505.10 30306000
Cash Balance 3000000-8000*312.40 500800
Total 50302000
No of units 638052
NAV 78.83
NAV as on 02/02/2012
Market price per shares Market Value
L Ltd 20000 Rs.20.50 410000
M Ltd 38000 Rs.360.00 13680000
N Ltd 20000 Rs.383.10 7662000
P Ltd 60000 Rs.503.90 30234000
Cash Balance 3000000-8000*312.40 500800
Total 52486800
No of units 638052
NAV 82.26
Solution-19A
a) Assets of Fund = 10000*19.70 + 50000*482.60 + 10000*264.40 + 100000*674.90 + 30000*25.90 = Rs.95238000
No of Units of Fund = 800000
NAV per Unit = 95238000/800000 = Rs.119.0475
b) The revised position of fund shall be as follows:
Shares No. of shares Price Amount (Rs.)
A Ltd. 10000 19.70 197000
B Ltd. 50000 482.60 24130000
C Ltd. 28000 264.40 7403200
D Ltd. 100000 674.90 67490000
E Ltd. 30000 25.90 777000
Cash in hand (5000000-18000*264.40) 240800
100238000
No. of units to be issued = 5000000/119.0475 = 42000

Total no of Units of MF = 842000
NAV per Unit = 100238000/842000 = 119.0475
C) On 2nd April 2009, the NAV of fund will be as follows:
Shares No. of shares Price Amount (Rs.)
A Ltd. 10000 20.00 2,30,000
B Ltd. 50000 513.70 2,56,56,000
C Ltd. 28000 290.80 81,42,000
D Ltd. 100000 671.90 6,71,90,000
E Ltd. 100000 44.20 13,26,000
Cash 10,27,78,200
nd
NAV as on 2 April 2009 =Rs.10,27,87,200/842000 =Rs.122.075 per unit
Solution-20
Value of all Assets of MF = Rs.480 m
Value of liabilities of MF = 1m
No of Units of MF = 10m
NAV = Assets-Liabilities/No of Units = (480-1)/10 = Rs.47.90
The market price = Rs.50
Premium over NAV = Rs.50 – 47.90 = 2.10
% of premium over NAV = 2.10/47.90 = 4.38%
Solution-21
NAV on the date of Investment = Rs.15
Premium on NAV = 1%
Market price of Unit = 15*1.01 = Rs.15.15
No of units purchased = Amt of Investment/ Market Price = 1000/15.15 = 66.0066 units
Return of Investor p.a. = 20% p.a.
His return for 6 months = 20/2 = 10%
The wealth would be at the end of six months period = Investment*(1+Return) = Rs.1000*1.1 = Rs1100
Dividend per unit = Rs.2
Dividend received by investor = 2*66.0066 = Rs.132
Sale proceeds of 66.0066 units = 1100 – 132 = Rs.968
Sale proceeds of per units = 968/66.0066 = 14.67 =Market Price of Unit
Discount on NAV on the date of sale = 2%
NAV = Market price/(1-DR) = 14.67/(1-0.02) = Rs.14.96
Solution-22
(a) Mrs. Charu plan A “Dividend reinvestment”
As on 01/04/1995
NAV = Rs.10
No of Units purchased = Amt of Investment/NAV = 100000/10 = 10000 units
No of Units Dividend Dividend Amt of Dividend No of Units Total no of

Date Purchased Rate per Unit Received NAV repurchased Units
28/07/1999 10,000.00 20% 2.00 20,000.00 30.70 651.47 10,651.47
31/03/2000 10,651.47 70% 7.00 74,560.26 58.42 1,276.28 11,927.75
31/10/2003 11,927.75 40% 4.00 47,710.98 42.18 1,131.13 13,058.87
15/03/2004 13,058.87 25% 2.50 32,647.18 46.45 702.85 13,761.72
31/03/2004 13,761.72 - - 42.18 - 13,761.72
24/03/2005 13,761.72 40% 4.00 55,046.88 48.10 1,144.43 14,906.15
31/07/2005 14,906.15 - 53.75
Redemption value 14,906.15*53.75 8,01,205.56

Less: Security transaction tax (S.T.T) is 0.2% = 801205.60*0.2% 1,602.41
Net amount received 7,99,603.15
Less: STCG tax @10% on 1,144.43 units purchased on 24/03/2005
= (53.75*0.998–48.10)*1144.43 6,343.00*10% 634.30
Net of tax 7,98,968.85
Less: investment 1,00,000.00
6,98,968.85
Return of 124 months = Closing Value – Opening Value/Opening Value = 698969/100000 = 698.96%
Average Annual return = 698.96%*12/124 = 67.64%
(b) Mr. Anand Plan B – bonus

As on 01/04/1995
NAV = Rs.10
Date Bonus Ratio Bonus Units Balance NAV per unit
01.04.1995 10,000 10
31.03.2000 5:4 12,500 22,500 31.05
31.03.2004 1:3 7,500 30,000 20.05
24.03.2004 1:4 7,500 37,500 19.95
Redemption value Rs.37500*22.98 861750.00

Less: Security transaction tax (S.T.T) is 0.2% = 861750*0.2% 1,723.50
Net amount received 860026.50
Less: STCG tax @10% on 7500 units purchased on 24/03/2005 172005*10% 1720.00
= 22.98*0.998*7500
Net Proceeds after tax 858306.50
Less: investment 100000.00
758306.50
Average Annual return = 758.30*12/124 = 73.38%
(c) Mr. Bacchan plan C – growth

As on 01/04/1995
NAV = Rs.10
Redemption value 10000*82.07 8,20,700.00

Less: security transaction tax (S.T.T) is .2% 1,641.40
Net amount received 8,19,058.60
Less: short term capital gain tax @ 10% 0.00
Net of tax 8,19,058,.60
Less: investment 1,00,000,00
Net gain 7,19,058.60
Average Annual return = 719.05%*12/124 = 69.59%
Solution-22A
(a) Mr X Plan A “Dividend reinvestment”
As on 01/04/2001
NAV = Rs.42.18
No of Units purchased = Amt of Investment/NAV = 500000/42.18 = 11853.96 units
Amt of
No of Units Dividend Dividend Dividend No of Units Total no of
Date Purchased Rate per Unit Received NAV repurchased Units
15/09/2001 11,854.00 15% 1.50 17,781.00 46.45 382.80 12,236.80
31/03/2003 12,236.80 20% 2.00 24,473.60 48.10 508.81 12,745.61
15/03/2004 12,745.61 18% 1.80 22,942.09 52.05 440.77 13,186.38
27/03/2006 13,186.38 16% 1.60 21,098.20 54.10 389.99 13,576.36
28/02/2007 13,576.36 12% 1.20 16,291.63 55.20 295.14 13,871.50
Sale Price 13871.50*50.10 Rs. 694962.15
Less: STT 0.2% 1390.00
693572.15
Less Short term capital gains [Nil] -
Net Proceeds 693572.15
Less: cost of acquisition 500000.00
Total gain 193572.15
Return of 7 yrs = Closing Value – Opening Value/Opening Value = 193572.15/500000 = 38.71%

Average Annual return = 38.71/7 = 5.53%
As per suggested answer [Pending]

Y: Plan B
As on 01/04/2001
NAV = Rs.35.02
Date Units held Bonus Ratio Bonus Number Total Units
01.04.00 14,278
28.07.02 14,278 1:6 2,380 16,658
31.10.03 16,658 1:8 2,082 18,740
24.03.05 18,740 1:11 1,704 20,444
28.02.07 20,444 1:12 1,704 22,148
Redemption 22148*34.10 755,247
Less: STT 0.2% 1,510
753,737
Less short term capital gains -
Net proceeds 753,737
Less: coat of acquisition 500,000
Total gain 253,737
Return of 7 yrs = Closing Value – Opening Value/Opening Value = 253737/500000 = 50.74%

Solution-23
Allocation of earnings
Old unit New unit Total
Holders Holders Earning
[9 lakhs units] [1 lakhs units
Rs in lakhs Rs. in lakhs Rs. in lakhs
First half year(Rs.5 per unit) 45.00 Nil 45.00
Second half year(Rs.3.60 per unit 32.40 3.60 36
77.4 3.60 81.00
Add: Equalization payment recovered - - 5.00
Available for distribution 86.00
Equalization Payment’s. 45 lakhs/18 lakhs= Rs.5 per unit.
Distribution of earning per unit
Old unit New unit
Holders Holders
Rs. Rs.
Dividend distributed 8.60 8.60
Less: Equalization payment - 5.00
8.60 3.60
Journal Entries
(Rs. in lakhs)
30.9.2009 Bank account Dr. 65.00
To unit capital A/c 10.00
To Reserve A/c 50.00
To dividend Equalization A/c 5.00
(Being the amount received on sale of 1 lakhs unit at a
NAV of Rs. 60/- per unit)
31.3.2009 Dividend Equalization A/c Dr. 5.00
To Revenue A/c 5.00
(Being the amount transferred to revenue account)
Revenue A/c Dr. 86.00
To Bank A/c 86.00
(Being the amount distributed among 20 lakhs unit
holders @ Rs. 8.60 per unit)
Solution-23A
Allocation of earnings
Old unit New unit Total
Holders Holders
[18 lakhs units] [2 lakhs units
Rs in lakhs Rs. in lakhs Rs. in lakhs
First half year(Rs.5 per unit) 90.00 Nil 90.00
Second half year(Rs.3.60 per unit 64.80 7.20 162.00
154.80 7.20 162.00
Add: Equalization payment recovered - - 10.00
Available for distribution 172.00
Equalization Payment’s. 90 lakhs/18 lakhs= Rs. 5 per unit.
Old unit New unit
Holders Holders
Rs. Rs.
Dividend distributed 8.60 8.60
Less: Equalization payment - 5.00
8.60 3.60
Journal Entries
(Rs. in lakhs)
30.9.2008 Bank account Dr. 150.00
To unit capital A/c 20.00
To Reserve A/c 120.00
To dividend Equalization A/c 10.00
(Being the amount received on sale of 2 lakhs unit at a
NAV of Rs. 70/- per unit)
31.3.2009 Dividend Equalization A/c Dr. 10.00
To Revenue A/c 10.00
(Being the amount transferred to revenue account)
Revenue A/c Dr. 172.00
To Bank A/c 172.00
(Being the amount distributed among 20 lakhs unit
holders @ Rs. 8.60 per unit)
Solution-24
WN-1 Calculation of Earnings p.u. month wise
Month April May June
Earnings (Rs. in lacs) 22.950 34.425 45.450
No of Units outstanding (lacs) 300 300+6 = 306 306-3 = 303
Earning p.u. 0.0765 0.1125 0.15
Note: It is assumed that the Units issued at the end of April are repurchased at the end of May.
This Earnings per Unit is used for the purpose of Equalisation Payment Recovery / Payment for Issue / Repurchase.
Allocation of earnings upto May
Particulars Rs. Particulars Rs.
Opening NAV 18.750 Opening NAV 18.750
Add: Entry Load @ 2% 0.3750 Less: Exit Load @ 2% -0.3750
Add: Equalisation Payment recovered 0.0765 Add: Equalisation Payment Paid (0.0765+0.1125) 0.189
th st
Issue Price at 30 April 19.2015 Repurchase Price at 31 May 18.564
(a) Income available for distribution
Particulars Earnings (Rs. Lacs) Old Units New Units Remaining New Units Redeemed
No of Units (Lacs) 300 3 3

April 22.950 300*0.0765 = 22.950 - -
May 34.425 300*0.1125 = 33.75 3*0.1125 = 0.3375 3*0.1125 = 0.3375
June 45.45 300*0.15 = 45.00 3*0.15 = 45 -
Sub Total 102.825 101.70 0.7875 0.3375
Add: Equalisation 6*0.0765 = 0.459 3*0.0765 = 0.2295 3*0.0765 = 0.2295

Payment Received
(Earnings of April)
Less: Equalisation -3*0.189 = -0.567 -3*0.189 = -0.567

Payment Paid
(Earnings of April &
May)
Available Earnings 102.717

100%
Earnings Distributed 71.9019

70%
Computation of Closing NAV
Articulars Computation Rs. in lacs
Opening NAV 18.75*300 5625.0000
Add: Proceeds from issue of Units 19.2015*6 115.2090
Capital Appreciation Given 425.47000
Net Income for the period 102.717
Less: Amt paid on redemption of untis 18.564*3 (55.6920)
Less: Dividend Distributed (71.9019)

th
Net Assets as on 30 June 6140.8021
th
No of Units as on 30 June 33
Closing NAV Rs.20.27

Chap – 9 MUTUAL FUND-SELF PRACTICE 9D.1
Question-2B [SM-2] [ICWA-Ch-2-4] A mutual fund, that had a net asset value of Rs.10 at the
beginning of the month, made income and capital gain distribution of Rs. 0.05 and Rs. 0.04 per
unit respectively during the month and then ended the month with a net asset value of Rs.
10.03. Compute the monthly return and annual return.
Solution-2B
% monthly return = (NAV1 + Dividend + capital gain– NAV0)/ NAV0

Monthly Return = (10.03 + 0.05 + 0.04 - 10)*100/10 = 1.2%.
Annual Return = 1.2*12 = 14.4%
Question-2C [May-2009-O] [M-4] A mutual fund that had a net asset value of Rs.16 at the
beginning of a month, made income and capital gain distribution of Rs.0.04 and Rs.0.03
respectively per unit during the month, and then ended the month with a net asset value of Rs.
16.08. Calculate monthly and annual rate of return.
Solution-2C
% monthly return = (NAV1 + Dividend + capital gain– NAV0)/ NAV0

Monthly Return = (16.08 + 0.04 + 0.03 - 16)/16 = 0.009375 = 0.9375%
Annual Return = 0.9375*12 = 11.25% p.a.
Question-4B [May-2013] [M-10] Mr. Sushil has invested in three Mutual Fund Schemes as
given below:
Particulars Scheme A Scheme B Scheme C
Date of investment 1-4-2011 1-5-2011 1-7-2011
Amount of Investment 12,00,000 4,00,000 2,50,000
Net Asset Value (NA V) at entry date 10.25 10.15 10.00
Dividend received up to 31-7-2011 23,000 6,0000 Nil
NAV as at 31-7-2011 10.20 10.25 9.90
three Schemes to Mr. Sushil up to 31-7-2011.
Take one year =365 days.
Show calculations up to two decimal points.
Solution-4B
Calculation of effective yield on per annum basis in respect of three mutual fund schemes to Mr. Sinha up to 31-03-2009:
Particulars A B C
Investment Rs.12,00,000 Rs.4,00,000 Rs.2,50,000
NAV as on date of Entry 10.25 10.15 10.00
No of Units Purchased 117073.17 39408.87 25000
Dividends per units 23000/117073.17 6000/39408.87 -
= 0.20 = 0.15 -
N.A.V. at end of year 31.03.2009 =Re.10.20 Re.10.25 Re.9.90
% periodic return (10.20+0.20-10.25)/10.25 (10.25+0.15-10.15)/10.15 (9.90+0-10)/10
=1.46% 2.46% -1%
Period = 4 month = 3 month = one month
Annualised Return 1.46*12/4 2.46*12/3 -1%*12/1
= 4.38% = 9.84% = (-) 12%
Question-4C [May-2015] [M-4] TUV Ltd has invested in three Mutual fund schemes as per
details below:
SCHEME X SCHEME Y SCHEME Z
DATE OF INVESTMENT 01.10.2014 01.01.2015 01.03.2015
AMOUNT OF INVESTMENT Rs.1500000 Rs.750000 Rs.250000
NET ASSET VALUE AT ENTRY DATE Rs.12.50 Rs.36.25 Rs.27.75
DIVIDEND RECEIVED UPTO 31.03.2015 Rs.45000 Rs.12500 NIL
NAV AS AT 31.3. 2015 Rs.12.25 Rs.36.45 Rs.27.55
three schemes to TUV Ltd upto 31.03.2015.
Solution-4C
Calculation of effective yield on per annum basis in respect of three mutual fund schemes to TUV Ltd up to 31-03-2015:
Particulars X Y Z
Investment Rs.1500000 Rs.750000 Rs.250000
NAV as on date of Entry Rs.12.50 Rs.36.25 Rs.27.75
No of Units Purchased 120000 20689.66 9009.009
Dividends per units 45000/120000 12500/20689.66 -
= 0.375 = 0.60 -
N.A.V. at end of year 31.03.2015 Rs.12.25 Rs.36.45 Rs.27.55
% periodic return (12.25+0.375-12.50)/12.50 (36.45+0.60-36.25)/36.25 (27.55+0-27.75)/27.75
=1% 2.20% -0.721%
Period = 6 month = 3 month = one month
Annualised Return 1*12/6 2.20*12/3 -0.721%*12/1
= 2% = 8.8% = (-) 8.652%
Question-5B [May-2011] [M-8] An investor purchased 300 units of Mutual Fund at rate of
Rs.12.25 per unit on 31.03.2009. As on 31.12.2010 he has received Rs.1.25 as dividend and had
received a capital gains distribution of Rs.1.00 per unit.
Required
(a) The return on the investment if the NAV as on 31.12.2010 is Rs.13.
(b) The return on the investment as on 31.12.2010 if all the dividends and capital gains
distributions are reinvested into additional units of the funds at Rs.12.50 per unit.
Solution-5B
(a) Return for the year (all changes on a per year basis)
Rs. Unit
Dividend received 1.25
Capital gain distribution 1.00
Total Income Received 2.25

= (13 + 1.25 + 1.00 – 12.25)/12.25 = 0.2448 = 24.48%
(b) If all dividends and capital gain are reinvested into additional units at Rs.12.50 per unit the position would be.
Total amount of dividend and capital gain =Rs.2.25 ×300 =Rs.675
Additional units to be added by reinvesting dividend and capital gain = Rs.675/12.50 =Rs. 54 units
Total no of units at the end of the year = 354
Closing Value of 354 units as on 31-12-2010 = Rs.13*354 = Rs.4602.00
Price paid for 300 units on 31-12-2009 (300 ×Rs.12.25) =Rs.3,675
= (4602 – 3675)/3675 = 25.22%
Question-7B [Nov-2013] [M-5] On 01-07-2010, Mr X invested Rs.50000 at initial offer in MF

at FV of Rs.10 each per unit. On 31-03-2011, a dividend was paid @10% and annualized yield
was 120%. On 31-03.2012, 20% dividend and capital gain of Rs.0.60 per unit was given. Mr X
redeemed all his 6271.98 units when his annualized yields was 71.50% over the period of
holding.
Calculate NAV as on 31-03-2011, 31-03-2012 and 31-03.2013.
Solution-7B
NAV as on 01/07/2010 = Rs.10
Dividend = 10% = Rs.50000*10% = Rs.5000
Annualised yield for 2010-11 = 120.00%
Yield for 9 months = (120*9/12) = 90%
Return for 9 months
0.90 = (Closing Value of 5000 units + 5000 – Rs.50000)/50000
NAV as on 31.03.2001 = (Closing Value of 5000 units/No of units = 90000/5000 = Rs.18
If Dividend is reinvested on 31/03/2011 at NAV = Rs.18
Therefore, no of units to be purchased from investment = 5000/18 = 277.78
Total no of units as on 31.03.2011 = 5277.78

Dividend as on 31.03.2012 = 20% = 5277.78*10*20% = Rs.10555.56
Capital Gain received = 5277.78*0.60 = Rs.3166.67
Total Income Received = Rs.13722.23
As per suggested, Reinvestment of Capital Gain has been ignored, hence
NAV as on 31.03.2012 = Amt of Income/No of Units purchased = 10555.56/994.20 = Rs.10.62
Alternative Answer
Therefore, NAV as on 31.03.2012 = Amt of Income/No of Units purchased = 13722.23/994.20 = Rs.13.80

As per Suggested
Annualised Return = 71.50% over the period of holding [From 01/07/20110 to 31/03/2013]
Return for the period 01/07/2010 to 31/03/2013 = 71.50*33/12 = 196.625%
Return =
(Closing Value of Investment– Initial Value of Investment)/ Initial Value of Investment
Closing Value of Investment–50000/50000 = 1.96625
Closing Value of Investment as on 31/03/2013 = 1.96625*50000 + 50000 = 148312.50
NAV as on 31/03/2013 = Closing Value of Investment/No of Units = 148312.50/6271.98 = 23.64
Question-16B [SM-1] Based on the following information, determine on the following

information, determine the NAV of a regular income scheme on per unit basis:
Rs. Lakhs
Listed shares at cost(ex-dividend) 20
Cash in hand 1.23
Bonds and debentures at cost 4.30
Of these, bonds not listed and quoted 1
Dividend accured 0.80
Amount payable in shares 6.32
Expenditure accured 0.75
Number of units (Rs.10 face value) 2,40,000
Current realizable value of fixed income securities of face value of Rs.100 106.50
The listed shares were purchased when index was 1200
On NAV date, the index is ruling at 2120
Listed bonds and debentures carry a market value of Rs.5 lacs on NAV date
Solution-16B
Particulars Adjustment value Value (Rs. in lakhs)
Equity shares 20*2120/1200 = 35.33
Cash in hand Book Value [Given] 1.23
Bonds and debentures not listed Book Value [Given] 1.00
Bonds and debenture listed Market value [Given] 5.00
Dividends accrued Given 0.80
Fixed income securities MV 4.50*106.50/100 4.7925
Less: Liabilities
Expenditure accrued Accrual Basis 0.75
No of units 2,40,000
Net Assets Value per unit Rs.17.12
Question-22B [Nov-2010-O] [M-10] A mutual fund company introduces two schemes i.e.
Dividend plan(Plan-D) and Bonus plan(Plan-B), The face value of the unit is Rs.10. On 1-4-2005
Mr. K invested Rs.2,00,000 each in plan-D and Plan B When the NAV was Rs.38.20 and Rs.35.60
respectively. Both the plans matured on 31.3.2010
Date Dividend Bonus Net Asset Value(Rs.)
% Ratio Plan D Plan B
30.09.2005 10 39.10 35.60
30.06.2006 1:5 41.15 36.25
31.03.2007 15 44.20 33.10
15.09.2008 13 45.05 37.25
31.10.2008 1:8 42.70 38.30
27.03.2009 16 44.80 39.10
11.04.2009 1:10 40.25 38.90
31.03.2010 40.40 39.70
What is the effective yield per annum in respect of the above two plans?
Solution-22B
Plan-D
NAV = Rs.38.20
Date Unit held % Dividend Reinvestment New Total
Amount Rate Units Units
01.04.2005 5235.60
30.09.2005 5235.60 10 5235.60 39.10 133.90 5369.50
31.03.2007 5369.50 15 8054.25 44.20 182.22 5551.72
15.09.2008 5551.70 13 7217.24 45.05 160.20 5711.92
27.03.2009 5711.92 16 9139.07 44.80 204 5915.92
31.03.2010 Maturity Value Rs.40.40*5915.92 Rs.2,39,003.17

Less: Cost of acquisition Rs.2,00,000.00
Total Gain Rs.39,003.17
Alternatively, it can be computed by using the IRR method as follows:
NPV at 4%=-2,00,000+1,96,443=-3,557
NPV at 2%=-2,00,000+2,16,473=16,473

IRR=LR+ (HR-LR)=2%+ (4%-2%)=3.645%.
( )
Plan- B
NAV = Rs.35.60
Date Units held Bonus Ratio Bonus Number Total Units
01.04.05 5617.97
30.06.06 5617.97 1:5 1123.59 6741.56
30.10.08 6741.56 1:8 842.70 7584.26
11.04.09 7584.26 1:10 758.43 8342.69
On 31.03.2010
Redemption 8342.69*39.70 331204.79
Less: cost of acquisition 200000.00
Total gain 131204.79

Alternatively, it can be computed by using teh IRR method as follows:

NPV at 13%=-2,00,000+1,79,765=-20,235
NPV at 8%=-2,00,000+2,25,413=25,413

IRR=LR+ (HR − LR)=8%= (13%-8%)=10.78%
( )

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CA-FINAL

Index Particulars Summary of Topics Q No Exam RTP

Explain briefly the advantages of investing in mutual funds. M-09

Briefly explain what is an exchange traded fund N-13 N-15

Distinguish between Open Ended and Close Ended Schemes M-15

Explain how to establish a Mutual Fund. N-03

What are the drawbacks of investments in Mutual Funds? N-08

Write short notes on Money Market Mutual Fund N-11

9.1 Mutual Fund

9.1.1 How Mutual Funds work for you

9.2 NAV and Return of Units of Mutual Fund

May-03 M-04 Nov-12 16

Nov-04 M-06 May-14 7

9.2.1 Calculation of Net Asset Value of Units of Mutual Fund

(b) There are three aspects which need to be highlighted:

(c) Calculation of NAV of units of Mutual Fund

Company No. of Shares Market Price Per Share

Nairobi Ltd 25000 Rs 20

Dakar Ltd 35000 Rs 300

Senegal Ltd 29000 Rs 380

Cairo Ltd 40000 Rs 500

9.2.2 Calculation of Return from MF

(b) % Return on units of MF =

Question-2A [May-2003] [M-4] [May-2010-O] [M-5] [SM] [Similar in ICWA-Ch-2-11]

Question-4 [Nov-2004] [M-6] [Same Question in ICWA-Ch-2-9]

Question-4B [May-2013] [M-10]

9.2.3 Calculation of return from MF if Income is reinvested

(b) No of Units to be purchased from reinvestment

(d) % Return on units of MF =

Closing Investment = No of units at Closing*NAV at Closing

Question-5 [May-2006] [M-6] [RTP-May-2014-7] [RTP-May-2012-12] [Same in ICWA-

Question-5B [May-2011] [M-8]

9.2.4 Calculation of NAV on the basis of Return

Annualised Return 15%

You are required to:

Question-7A [Nov-2006] [M-6] [ICWA-Ch-2-6] [SP] Mr X on 1.7.2000, during the initial

Question-7B [Nov-2013] [M-5]

9.3 Costs incurred by Mutual Fund

N-03 M-04 M-13 15

(a) There are 2 type of expenses incurred by Mutual Fund

(ii) Ongoing recurring expenses (Management Expense Ratio) which is made up of

9.3.1 Calculation of Issue Exp, Recurring Exp, Actual return of MF

Indifferent Point between Own Investment and Investment by MF

Return from own investment by Investor = Effective return provided by MF to Investor

Effective return provided by MF to Investor = (Return earned by Mutual Fund – Recurring

Question-8 [Same in ICWA-Ch-2-13]

Question-8A [Nov-2003] [M-4] [RTP-May-2013-15] [Same in ICWA-Ch-2-10]

9.4 Entry fees and Exit fees in MF

9.4.1 Calculation of Return from units of MF in case of Entry or Exit Fees

9.5 Calculation of NAV after calculating Value of Assets of MF

N-09 M-08 N-11

N-09 M-08 N-13 10

M-10 M-06 N-14 16

Asset Values : Valuation Rule

Question-15 [Nov-2009] [M-8] [ICWA-Ch-2-3] A mutual fund made an issue of 10,00,000

Question-18 [May-2013] [M-8] [RTP-Nov-2014-16] On 1-4-2012 ABC Mutual Fund issued

A Ltd. 10000 19.70

C Ltd. 10000 264.40

D Ltd. 100000 674.90

No of Units fund = 800000

9.6 Calculation of Premium/ Discount on NAV in compare to Market price of

(b) If MP>NAV, then Units are said at Premium over NAV

(c) If MP<NAV, then Units are said at Discount under NAV