The composition of the Fingroup Fund portfolio is as follows:

Stock Shares Price ($)

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

SOLN
MARKET VALUE OF ASSET

STOCK SHARES PRICE($) MARKET VALE OF ASSETS

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

LESS LIABILITIES
ACCRUED MGMT FEES 30,000
NO OF SHARS 4,000,000 4,000,000.00

NAV 10.4925

NAV - (TOTAL ASSETS- OUTSANDING LIABILITIES)/NO OF SHARES

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

SOLN
CALCULATION OF NAV (IN MILL)
MV 200
LIAB 3.00
UNITS 5
NAV 39.40

CALCULATION OF PREMIUM / DISCOUNT - MARKET PRICE =36 PER UNIT

MP PER UNIT 36
PREMIUM/DIS -8.63%

AT 42 PER UNIT
MP PER ₹ 42.00
PREMIUM/DISCOUNT 6.60%

TAKE NAV AS THE BASE

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

FEL 4% & 0.5% fee = A

FOR 1 YEAR
A 10507
FOR YEAR 4
A 13776
FOR 10 Y
A 23683

FOR 1 YEAR
B 10507
FOR 4 YEARS
B 14206.87

FOR 10 YEARS
B 24669.35

Question for students' practice

The Investment Fund sells class A units with a front -end load of 6% and class B units with annual M-fees of 0.5% ann
(for both unit classes) as well as back-end load fees (for Class B shares only) that start at 5% and fall by 1% for the fu
the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return is 10%. If you plan to sell the
after 4 years, are class A or class B units the better choice for you? What if you plan to sell after 15 years? Assume $1,
investment.

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

Class B units:
Amount invested (no front end load)
Value of units after 4th year
Value of units after 15th year

ANALYSIS

OR A SHORTER TIME HORIZON WE ARE IN DIFFFERENT WITH THE TWO CLASS OF SHARES UNITS FOR A MODERATE TIME SPA
 an annual management fees of 0.5%
5% and fall by 1% for each full year the
d portfolio is 10% annually, what will
after (a) 1 year, (b) 4 years and (c) 10
ent horizon?

FEL 4% & 0.5% fee = A B = BEL 5% …1%, 0.5%

SELL OF SHARES CONSIDER

ASSUMING BACK END

with annual M-fees of 0.5% annually

t at 5% and fall by 1% for the full year
rn is 10%. If you plan to sell the fund
sell after 15 years? Assume $1,000 as

Amount ($)
1,000
1,349
3,642

Amount ($)
1,000
1,421
3,875

TS FOR A MODERATE TIME SPAN OF 4 YEARS TO A LONGER SPAN OF 10 YEARS CLASS B UNITS/SHARES WILL DOMINATE TH
OF SHARES CONSIDERING THE LOAD CHARGES - AMOUNT ASSUME(1-FRONT END LOAD)(ANNUAL RETURN)^N

ASSUMING BACK END LOAD CHARGES- AMOUNT(1-LOAD)(1+ANNUAL RETURN)^N(1-BACK END LOAD). IMP - IF REEDE

ES WILL DOMINATE THE PERFORMANCE OF CLASS A SHARES AS THE FRONT END LOAD OF CLASS A STOCKS WIL BE MORE CO
LOAD). IMP - IF REEDEM WITHIN YEAR THE

STOCKS WIL BE MORE COSTLY THEN THE ANNAUAL MGMT FEES OF 0.5% AND THE DECREASING BACL END LOAD OF 5 %
Mutual funds can effectively charge sales fees in one of three ways: front end load fees, 12b-1(i.e. annual fees), or deferred (i.e. back-end) load fees. Assume
that SAS Fund offers its investors the choice of any one of the following sales fee arrangements;
i) 3% front –end load
ii) 0.5% deduction fee
iii) 2% back-end load, paid at the liquidation of the investor’s position.
Also assume that SAS Fund averages gross NAV growth of 12% per year.

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

PARTICULARS 1 2
SCHEME 3% FRONT END 0.5% DED

INV 100,000 100,000

N 3 3
AMIUNT 136,278.02 138,395.93

N 10 10
AM 301,267 295,400

C
A FRONT END LOAD (SALES CHARGE) WILL REDUCE THE INITIAL INVESTMENT AMOUNT AND SO WILL TAKE A LONGER TIME HORIZON TO MAKE GOOD RETURNS, A
erred (i.e. back-end) load fees. Assume

h of the sales fee schemes. Indicate

d to hold your investment for a long time,

3
2% BACK END

100,000
3
137,682.94

10
304,373

TIME HORIZON TO MAKE GOOD RETURNS, A

The focus fund is a mutual fund that holds long term positions in a small number of non-dividend paying stocks.
The holdings at the end of two years are as follows.

o/s exps

a) Calculate the NAV for a unit of the focus fund at the end of year 1. Include the cash position in the net total
portfolio value. Also note that Focus Fund has issued 54,30,000 units
b) Immediately after calculating its year 1 NAV, Focus Fund sold its position in Stock L and purchased its position
in Stock M (both done at year 1 prices). Calculate Year 2 NAV of the fund per unit and compute its growth rate.

c)) At the end of year 2, how many fund units of Focus Fund could the manager redeem without having to
liquidate her stock positions.
d)) If immediately after calculating the Year 2 NAV, the manager received investor redemption requests for
500,000 units, how many stocks/shares of each stock would she have to sell in order to maintain the same
PROPORTIONAL ownership position in each stock? Assume she liquidates the entire cash position first before
selling holdings.
ANS (A)
CALCULATION OF YEAR 1 CAL OF Y2
MV OF ASSET MV OF ASSET
MV OF STOCK HOLDINGS 73531570 CASH
CASH 3542000
TOTAL ASSETS 77073570 TOTAL
O/S LIAB 730000
NO OF UNITS 5430000 O/S LIAB
NO OF UNIT
NAV 14.06 NAV

(B) GROWTH RATE 16.01%

(C)

NO OF UNITS TO BE REEDEMED USING CASH

CASH 2873000
NAV OF YEAR 2 16.31115

NO OF UNITS TO BE REEDEM 176,137

(D)

UNITS TO BE REEEDEMED 500,000.00

NAV 16.3111547 STOCK NO OF SHARES
A 100000
TOTAL TO BE REEDEM 8,155,577 B 225000
CASH 2873000 C 375000
NET TO BEREDDEM 5,282,577 D 115000
E 154000
F 175000
G 212000
H 275000
I 450000
J 90000
K 87000
L 0
M 150000
 86526570
2873000

89399570

830000
5430000
16.31115

PRICE MV %OF WEIGHT AMT REDEM NO OF SHARES

48.75 4875000 5.63% 297,626.1 6,105.2
24.75 5568750 6.44% 339,980.6 13736.5886954136
12.38 4642500 5.37% 283,431.6 22894.3144923561
98.5 11327500 13.09% 691,560.9 7020.92311098919
62.5 9625000 11.12% 587,620.7 9401.93181819423
 7713475000 15.57% 822,669.0 10684.0134297662
38.63 8189560 9.46% 499,985.0 12942.9191263453
8.75 2406250 2.78% 146,905.2 16789.1639610611
27.4512352500 14.28% 754,138.7 27473.1773908273
75.38 6784200 7.84% 414,185.6 5494.63547816546
49.63 4317810 4.99% 263,608.8 5311.48096222661
27.88 0 0.00% - 0
19.75 2962500 3.42% 180,865.1 9157.72579694243

86526570 147012.024793582
You are considering an investment in a mutual fund with a 4% front load and expense ratio of 0.5%. You can invest instead in a Bank CD paying 6% interest.
a) If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in a CD? Assume annual
compounding of returns.
b) How does your answer change if you plan to invest for six years? Why does your answer change?
c) Now suppose that instead of a front -load the fund assesses an additional 12b-1 fee of 0.75% per year. What annual rate of return must the fund portfolio
earn for you to be better off in the fund than in the CD? Does your answer depend on your time horizon?

ANS
(A)
SUPPOSE $100 IS INVESTED IN BANK CD FOR 2 Y 100
MATURITY 112.36

SUPPOSE $100 INVESTED IN MF FOR 2 Y 100

AMT ACTUALLY FOR (NET LOAD) 96

MATURITY VALUE FROM MF 96*(1+R)^2*(1-0.05)^2

95.0424
EQUATING 1 & 2 95.0424*(1+R)^2

NET R
(1+R)-
R

(B)
SUPPOSE $100 DOLLAR INV IN BANK CD FOR 6Y 100
MATURITY 141.8519

SUPOSE 100 IS INVESTED IN MF FOR 6Y 100

AMT AFTER (NET LOAD) 96
R 12.34%
MATURITY VALUE 141.852
if you plant to invest for 6 years then the fund portfolio will earn 7,26% the annual rate has come down from 8.73 to 7.26 as the front load is distributed over 6 years

(C)

SUPPOSE 100 100

ANNUAL EXP 0.75%
EXP RATIO 0.50%

MATURITY 106

R 7.34%
106
u can invest instead in a Bank CD paying 6% interest.
be better off in the fund than in a CD? Assume annual

r. What annual rate of return must the fund portfolio

?

EQUATION 1

EQUATION 2

₹ 112.36

₹ 1.18
1.08729444193893
8.73%
from 8.73 to 7.26 as the front load is distributed over 6 years
Corporate Fund started the year with a NAV of Rs. 12.50. By year end, its NAV equaled Rs. 12.10. The
fund paid year end distributions of income and capital gains of Rs. 1.50. What was the pretax rate of
return to an investor in the fund?

ANS
BEGINNING VALUE 12.5
NAV AT END 12.1
CAPITAL GAINS 1.5

RATE 8.80%

RATE OF RETURN- (NAV END - NAV BEGIN+ INCOME AND CAPITAL GAINS )/ NAV END
Consider the following data of GM Mutual Fund (Income plan):
Particulars Rs. in crores
Value of investments 868.55
Receivables 65.15
Accrued income 43.4
Other current assets 260.57
Liabilities 195.43
Accrued expenses 43.4
No. of units outstanding 70

Calculate the NAV per unit 14.26914286

Consider the following information related to an Index fund and its benchmark index for a period of six months:
Months Return of Fund Return of Benchmark
Apr 2.50% index 2.55% TRACKING ERROR
May -0.50% 0.00%
June 1.40% 1.44%
July 1.00% 1.00%
Aug -1.70% 0.08%
Sept -4.00% 0.00%

Calculate the tracking error of the Index fund’s return during the last six months.

Months Return of Fund Return of Benchmark DIFF

Apr 2.50% index 2.55% -0.05%
May -0.50% 0.00% -0.50%
June 1.40% 1.44% -0.04%
July 1.00% 1.00% 0.00%
Aug -1.70% 0.08% -1.78%
Sept -4.00% 0.00% -4.00%
AVG RET -0.22% 0.85% -1.06%
TRACKING ERROR 1.59% LOWER THE BETTER
(ACTIVE RISK)

( TRACKING ERROACTIVE RETURN -1.06% RETURNED OVER THE BNCHMARK

INFORMATIN RATIO -66.7% HIGHER THE BETTER

Consider the following data of an International fund
Particulars Rs. in crores
Investment 2250 1 Sales charge is a commission p
Receivable 175 (broker, financial planner, inve
Accrued Income 62 2 In general, there are two kind
Other current assets 673 3 SALES CHARGE is computed o
o/s Liabilities 725
Accrued expenses 115

No. of units outstanding 175

Public offer price p.u. 13.52

Calculate the sales charge % on Public Offer Price

Solution 10:

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

NAV 13.25286

SALES CHARGE 1.98%

Sales charge is a commission paid by an investor on his or her investment in a mutual fund. The sales charge is paid to a financial inte
(broker, financial planner, investment adviser, distributor, etc.).Sales charges are expressed as a percentage of the investment value.
In general, there are two kinds of sales charges: front-end loads and back-end loads.
SALES CHARGE is computed on Public offer price (POP)
ge is paid to a financial intermediary
e of the investment value.
The following information is related to the assets and liabilities of JM Mutual Fund:

ANS
TOTAL ASS 1308.901
TOTAL LIAB 1308.14
UNIT HOL 1067.965
O/S LAIB 240.1744

NAV ###
NAV 15.26752

The accrued expenses and accrued income are Rs. 45 crores and Rs. 50 crores
respectively. If the number of outstanding units is 70 crores, calculate the NAV per unit.
Consider the following data of JM Mutual Fund (Income plan):
Particulars Rs. in crore
Value of investments 2084.52
Receivables 162.88
Accrued income 47.74
Other current assets 573.23
o/s Liabilities 488.56
Accrued expenses 112.92

If the number of outstanding units is 160 crore and sales charge is 2.5% on the public offer price, calculate the
public offering price.

POP * (1-sc%) = NAV

14.1680625 NAV
14.5313461538462 POP
Consider the following data of a mutual fund scheme:

Particulars Rs. in crore

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

If the number of outstanding units is 200 crore and sales charge is 1.5% on the public offer price
calculate the public offering price.

NAV 10.31515
POP 10.47
Which of the following statement(s) is/are not correct about various types of mutual funds?

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

(e) Open-ended Mutual fund units are issued like any other company’s new issues listed and quoted atstock exchange.
Consider the following data of J.M. Mutual Fund (Income plan):
Generally, Sales charge is on POP which is also many a times the NAV.
Particulars Rs. in crore But the MF can charge you POP including the sales charge over and above the N
Value of investments 4169.04 In case it is on NAV, then compute on NAV else on POP
Receivables 325.76
Accrued income 95.48
Other current assets 1146.46
o/s Liabilities 977.12
Accrued expenses 225.84
Number of units outstanding 320 crore
Entry Load 2.50%

Mr. Prashant wants to purchase units of this scheme. Calculate the per unit price that will be invested in the scheme.
Solution:
NAV
NAV (after entry load)

NAV
TOTAL ASSET 5736.74
TOAYL LIAB O/S 1202.96
O/S UNITS 320

NAV 14.16806
NAV AFTER ENTRY LOAD 13.81386 PER UNIT PRICE
 a times the NAV.
harge over and above the NAV
The following is the information pertaining to an open ended mutual fund scheme:
Particulars Rs. in mn
Liabilities 56.2
Receivables 18.8
Accrued income 6.3
Other current assets 75.6
Value of investments 280
Accrued expenses 12.3

The number of units outstanding is 21.4 million and the fund charges 2% as entry load on public offer price. Calculate the public offer price.

TOTAL ASSETS 380.7

TOTAL LIAB 68.50
NO OF UNITS O/S 21.4

NAV 14.59

POP 14.88652
Consider the following data pertaining to equity scheme offered by Wealthy MF scheme:
Particulars Rs. in crore
Investments 2550
Receivables 187
Accrued income 95
Accrued expenses 150
Other current assets 755
Liabilities 750
The number of outstanding units is 195 crore and repurchase price is Rs.13.25. Calculate the applicable exit load on the NAV.
Solution:
NAV ₹ 13.78
Repurchase price (redemption by investor) ₹ 13.25
Exit Load 3.84%
The NAV of each unit of a closed-end fund at the beginning of the year was Rs.15. By the year
end, its NAV equals Rs.15.50. At the beginning of the year, each unit was selling on the stock
exchange at a 2% premium to NAV. By the end of the year, each unit is selling at a 4% discount to
NAV. The fund paid year-end distributions of income and capital gains of Rs.2.60 on each unit.
Calculate the rate of return to the investor in the fund during the year.

ANS
NAV0 15.3
NAV(1) 14.88
PREMIUM 2%
DIS 4%
INCOME AND CAPITAL 2.6

RATE OF RETURN 14.25%

The following is the information pertaining to an open-ended mutual fund scheme.
Particulars Rs. in million
Value of investments 240
Receivables 15.2
Accrued income 5.2
Other current assets 42.5
Liabilities 33.05
Accrued expenses 10.4

If the number of outstanding units is 175 lakh and the public offer price is Rs.15.27. Calculate the entry load charged by the fund based on POP.

TOTAL ASSET 302.9

TOTA LIAB 43.45
O/S 17.50

NAV 14.83
POP ₹ 15.27

₹ 1.03
LOAD 3.00%

POP*(1-SC)-NQV
₹ 0.44
2.91%
A open ended mutual fund started with a corpus of Rs. 1500 crores with 150 crore units outstanding
The investments of the fund were as follows:
No. of shares Price Amount(crores)
RIL 230000 3200 73.600
TCS 340000 3100 105.400
L&T 560000 1330 74.480
SBI 1000000 543 54.300
ICICI 2300000 789 181.470
KOTAK 5600000 649 363.440
HUL 2190000 1034 226.446
ADANI 2376000 980 232.848
Cash 188.016
Total 1500.000
During the 1st month, MF sold 25% of its holding in ADANI and increased the stake in TCS by 50%
Of original holding. ADANI was sold at a price of 765 and TCS was purchased at a price of 3150.
MF received dividend from RIL, TCS and HUL at a rate of 50%, 100% and 40% on their face value of
Rs. 10 each. During the month it also redeemed 50 lakhs units at opening NAV of the month subject
To exit load of 4%. It also received application for additional units of 65 lacs which were issued at an NAV of
Rs. 12 each unit subject to entry load of 2%. The appreciation in the share value of RIL, TCS, L&T, SBI,ICICI,
KOTAK, HUL and ADANI were 12%, -3%, 2%, 16%, 7%, 6%, 1% and -45%.
Calculate the NAV of the MF at the end of the month
NAV
10

No. of shares Price Amount(crores)

RIL 230000 3200 73.600
TCS 340000 3100 105.400 510000
L&T 560000 1330 74.480
SBI 1000000 543 54.300
ICICI 2300000 789 181.470
KOTAK 5600000 649 363.440
HUL 2190000 1034 226.446
ADANI 2376000 980 232.848 1782000
Cash 188.016
Total 1500.000
 CASH BALANCE
OP 188.016
ADANI INCOME 45.44
TCS OUTFLOW -53.55
DIV INFLOW 0.115
TCL INLOW 0.51
INFLOW HUL 0.876
OUTFLOW REDEMPTION OF UNITS -4.8
INFLOW ADDITIONAL ISSUE 7.956
NET CASH 184.564
SHARE APPRECIAITION ON REEDEMPTION OR REPURCHASE OF
UNITS THERE IS OUTFLOW OF CASH AND
ON OFFER OR ISSUE OF UNITS THERE IS
RIL 3200 3584 INFLOW OF CASH
TCS 3100 3007
L&T 1330 1356.6
SBI 543 629.88
ICCI 789 844.23
KOTAK 649 687.94
HUL 1034 1044.34
ADANI 980 539
STOCK HOLDING
No. of shares SHARES PRICE / CURRENT PRICE
RIL 230000 3584 824320000.000
TCS 510000 3007 1533570000.000
L&T 560000 1356.6 759696000.000
SBI 1000000 629.88 629880000.000
ICICI 2300000 844.23 1941729000.000
KOTAK 5600000 687.94 3852464000.000
HUL 2190000 1044.34 2287104600.000
ADANI 1782000 539 960498000.000
CASH 184.564
12789261600
UNITS O/S 150.15 1278.92616
1463.490
NAV 9.75