Mutual Fund

Mutual Funds

QUESTION 1:
N 14

Cinderella Mutual Fund has the following assets in Scheme Rudolf at the close of business on 31st
March, 2014.
Company No. of Shares Market Price (₹)
Nairobi 25,000 20
Dakar 35,000 300
Senegal 29,000 380
Cairo 40,000 500
The total number of units of Scheme Rudolf are 10 lacs. The Scheme Rudolf has accrued expenses
of ₹ 2,50,000 and other liabilities of ₹ 2,00,000. Calculate the NAV per unit of the Scheme Rudolf.
Solution:
Shares No. of shares Price (₹) Amount (₹)
Nairobi Ltd. 25,000 20.00 5,00,000
Dakar Ltd. 35,000 300.00 1,05,00,000
Senegal Ltd. 29,000 380.00 1,10,20,000
Cairo Ltd. 40,000 500.00 2,00,00,000
Total Amount 4,20,20,000
Less: Accrued Expenses 2,50,000
Other Liabilities 2,00,000
Total Value 4,15,70,000
÷ No. of Units 10,00,000
NAV per Unit 41.57

QUESTION 2:
M 16 | M 14 | M 10 | RTP | SM

Calculate the NAV of a regular income scheme on per unit basis of Red Bull mutual fund from the
following information:
Particulars Rs. In Crores
Listed shares at cost (ex-dividend) 30.00
Cash in hand 0.75
Bonds & Debentures at cost (ex-interest) 2.30
Of these, bonds not listed & not quoted 1.00
Other fixed interest securities at cost 2.50

295
Adish Jain CA CFA
Mutual Funds

Dividend accrued 0.80

Amount payable on shares 8.32
Expenditure accrued 1.00
Value of listed bonds & debentures at NAV date 10.00
Number of units (₹10 face value) 30 lakhs
Current realizable value of fixed income securities of face value of ₹ 100 is 106.50
The listed shares were purchased when index was 7100
and the Present index is 9000
Unlisted bonds and debentures are at cost. Other fixed interest securities are also at cost.
Solution:
Particulars ₹ crores
 30  38.028
Equity Shares   9,000
 7,100 
Cash in hand 0.75
Bonds and debentures not listed 1.00
Bonds and debentures listed 10.00
Dividends accrued 0.80
Fixed interest securities 2.50
Less: Amount payable on shares (8.32)
Expenditure accrued (1.00)
Net Assets 43.758
Number of units 0.3
Net Assets Value per unit ₹ 145.86

QUESTION 3:
N 20 | M 18 | M 12

SG Mutual Fund Co. has the following assets under it on the close of business as on:
Company No. of Shares 1st February 2012 2nd February 2012
Market price per share (Rs.) Market price per share (Rs.)
Q Ltd 2,000 200.00 205.00
R Ltd 30,000 312.40 360.00
S Ltd 40,000 180.60 191.55
T Ltd 60,000 505.10 503.90
Total No. of Units 6,00,000
a. Calculate Net Assets Value (NAV) of the Fund as on 1st February.
296
Adish Jain CA CFA
 Mutual Funds

b. Following information is given:

Assuming one Mr. Zubin, an investor, submits a cheque of Rs. 30,00,000 to the Mutual Fund
and the Fund manager of this company purchases 8,000 shares of R. Ltd; and the balance
amount is held in Bank. In such a case, what would be the position of the Fund?
c. Find new NAV of the Fund as on 2nd February 2012.
Solution:
(i) Net Assets Value (NAV) of the Fund as on 1st February:
Company No. of Shares MPS on 1st Feb MV
Q Ltd. 2,000 200.0 4,00,000
R Ltd. 30,000 312.4 93,72,000
S Ltd. 40,000 180.6 72,24,000
T Ltd. 60,000 505.1 3,03,06,000
4,73,02,000
4 ,73,02,000
NAV per unit = = 78.8367 i.e., 78.84
6,00,000
(ii) Closing Cash Balance = 30,00,000 – 8,000  312.40
= 5,00,800
30,00,000
No. of units to be issued = = 38,053.34
78.8367
Total Units = 6,00,000 + 38,053.34 = 6,38,053.34
The revised position of fund shall be as follows:
Company No. of Shares MPS on 1st Feb MV
Q Ltd. 2,000 200.0 4,00,000
R Ltd. 38,000 312.4 1,18,71,200
S Ltd. 40,000 180.6 72,24,000
T Ltd. 60,000 505.1 3,03,06,000
Cash 5,00,800
5,03,02,000
5,03,02,000
NAV per unit = = 78.8367 i.e., 78.84
6,38,053.34

(iii) On 2nd Feb, the NAV of fund will be as follows:

Company No. of Shares MPS on 2nd Feb MV
Q Ltd. 2,000 205.00 4,10,000
R Ltd. 38,000 360.00 1,36,80,000
297
Adish Jain CA CFA
Mutual Funds

S Ltd. 40,000 191.55 76,62,000

T Ltd. 60,000 503.90 3,02,34,000
Cash 5,00,800
5,24,86,800
₹ 5,24,86,800
NAV per unit = = ₹ 82.26 per unit
6,38,053
QUESTION 4:
N21 | M 15 | RTP

There are two Mutual Funds viz D Mutual Fund Ltd. and K Mutual Fund Ltd. Each having close
ended equity schemes.
NAV as on 31-12-2014 of equity schemes of D Mutual Fund Ltd. is Rs. 70.71 (consisting 99% equity
and remaining cash balance) and that of K Mutual Fund Ltd. is 62.50 (consisting 96% equity and
balance in cash)
Following is the other information:
Equity Schemes
Particular
D Mutual Fund Ltd. K Mutual Fund Ltd.
Sharpe Ratio 2 3.3
Treynor Ratio 15 15
Standard deviation 11.25 5
There is no change in portfolios during the next month and annual average cost is Rs. 3 per unit
for the schemes of both the Mutual Funds.
If Share Market goes down by 5% within a month, calculate expected NAV after a month for the
schemes of both the Mutual Funds.
For calculation, consider 12 months in a year and ignore number of days for particular month.
Solution:
D Mutual Fund K Mutual Fund
NAV as on 31/12/2014 70.71 62.50
Less: Equity 70.0029 60
Cash 0.7071 2.50
Calculating ‘E(R) – Rf’ using Sharpe Ratio:
Sharpe Ratio
E(r ) − R f
2 = E(r ) − R f 3.3 = E(r ) − R f
p 11.25 5
22.5 = E(r) – 𝑅𝑓 16.5 = E(r) – 𝑅𝑓
Calculating βp using Treynor Ratio:
298
Adish Jain CA CFA
 Mutual Funds

Treynor Ratio
E(r ) − Rf
15 = 22.50 15 = 16.5
p p p
p = 1.5 p = 1.1

If market goes down by: 5% 5%

Beta 1.50 1.10
Equity will go down by: 7.50% 5.50%
Cash balance at the end of the month:
DMF KMF
Opening Cash in Hand 0.7071 2.50
Less: Annual Average Cost (3/12) (0.25) (0.25)
Closing Cash Balance 0.4571 2.25
NAV at the end of the month:
Value of equity 70.0029  (1 - 0.075) = 60  (1 - 0.055) = 56.07
64.7527
Add: Cash 0.4571 2.25
65.2098 58.95

QUESTION 5:
M 18

The unit price of Equity Linked Savings Scheme (ELSS) of a mutual fund is Rs. 10/-. The public offer
price (POP) of the units is Rs. 10.204 and the redemption price is Rs. 9.80.
Calculate: A) Front-end Load B) Back end Load
Solution:
(a) Front-end load
Offer Price = NAV (1 + Entry load)
10.204 = 10 (1 + Entry load%)
1.0204 - 1 = Entry load
Entry load = 2.04%
(b) Back-end load
Redemption price = NAV (1 – Exit load)
9.80 = 10 (1- Exit load)
1 – 0.98 = Exit load
Exit load = 2%
299
Adish Jain CA CFA
Mutual Funds

QUESTION 6:
M 10 | M 09 | M 03

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:
NAV1 - NAV0 + D + CG
Monthly return =
NAV0
= 0.04 + 0.03 + 16.08 − 16 × 100
16
= 0.9375%
Annual Return = 0.9375 × 12 = 11.25% p.a.

QUESTION 7:
N 18 | M 13 | RTP

On 1-4-2012 ABC Mutual Fund issue 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 was 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 earnings?
Solution:
Calculation of Cash Balance on 30/4/2012
Opening Balance (20  10) 200
Less: Initial Expense -12
Less: Invested -185
Add: Proceeds from sale of securities 63
Less: Securities Purchased -56
Less: Fund management expense (9 – 10%) -7.2
Add: Dividend received 2
Less: Dividend distributed (5  80%) -4

300
Adish Jain CA CFA
 Mutual Funds

Closing Cash 3+2 0.8

Calculation of closing NAV1:
MV of the portfolio 198
Cash Balance 0.8
Less: Fund Management Expense Payable (0.8)
Closing NAV 198
÷ Number of Units 20
NAV per unit 9.9
4,00,000
Calculation of Dividend & capital gains =
20,00,000
= 0.20
NAV1 - NAV0 + D + CG
Annual Rate of earnings =  12  100
NAV0
0.20 + 9.9 − 10 12
=  100
10 1
= 12%

QUESTION 8:
M 22 | N 09 | RTP

A mutual fund made an issue of New Fund Offer (NFO) on 01/01/2021 of 10.00 Lakh Units of ₹ 10
each. No entry load was charged. It made the following investments:
Particulars (₹)
25,000 Equity Shares of XYZ Ltd., ₹ 100 each @ 320 80,00,000
5% Government Securities 4,00,000
10% NCDs Unlisted 5,00,000
8% Listed Debentures 10,00,000
During the year, dividends of ₹ 8.00 lakhs were received on equity shares. Interest on all types of
debt securities were received. On 31st December 2021 equity shares were appreciated by 15%
while listed debentures were quoted at 20% premium.
XYZ Ltd., on 15th December 2021 in its AGM declared the interim dividend of 10% and bonus
shares at 1:10 with the record date of 28th December 2021.
a. Find out the NAV per unit as on 31st December given that the operating expenses paid during
the year amounting to ₹ 3,00,000.
b. Find out the NAV, if the MF had distributed a dividend of ₹ 0.50 per unit during the year to
the investors.

301
Adish Jain CA CFA
Mutual Funds

c. If you are the investor, find out what is the annualised return you have got?
Solution:
(a) Calculating cash balance on 31st Dec:
In ₹
Issue proceeds 1,00,00,000
Investments in securities (99,00,000)
Dividend Received 8,00,000
Interest on 5% Govt. Securities 20,000
Interest on 10% NCDs 50,000
Interest on 8% Listed Debentures 80,000
Interim Dividend (25,000  100  10%) 2,50,000
Less: Operating expenses paid (3,00,000)
Cash Balance on 31st Dec 10,00,000
Calculation of NAV
Cash Balance 10,00,000
Equity shares (27,500  368) 1,01,20,000
5% Govt. Securities 4,00,000
10% NCDs 5,00,000
8% Listed Debentures (20% premium) 12,00,000
Total Assets 1,32,20,000
No. of Units 10,00,000
NAV per Unit ₹ 13.32
(b) Calculation of NAV, if dividend of ₹ 0.50 is paid:
Net Assets
=
Number of units
1,32,20,000 – 5,00,000
= = 12.72
10,00,000
NAV1 - NAV0 + D + CG
(c) Annualized Return =
NAV0
13.22 - 10
= = 32.2%
10
(12.72 - 10) + 0.5
Or = = 32.2%
10

302
Adish Jain CA CFA
 Mutual Funds

QUESTION 9:
M 19

The following particulars relating to Vishnu Fund Scheme:

Particulars Value Rs. in Crores
1. Investments in Shares (at cost)
a. Pharmaceutical Companies 79
b. Construction Industries 31
c. Service Sector Companies 56
d. IT Companies 34
e. Real Estate Companies 10
2. Investments in Bonds (Fixed Income)
a. Listed Bonds (8000, 14% Bonds of Rs. 15,000 each) 12
b. Unlisted Bonds 7
3. No. of Units outstanding (crores) 4.2
4. Expenses Payable 3.5
5. Cash and Cash equivalents 1.5
6. Market expectations on listed bonds 8.842%
Particulars relating to each sector are as follows:
Sector Index on Purchase date Index on Valuation
Pharmaceutical companies 260 465
Construction Industries 210 450
Service Sector Companies 275 480
IT Companies 240 495
Real Estate Companies 255 410
The fund has incurred the following expenses:
Consultancy and Management fees Rs. 480 Lakhs
Office Expenses Rs. 150 Lakhs
Advertisement Expenses Rs. 38 Lakhs
You are required to calculate the following:
a. Net Asset Value of the fund
b. Net Asset Value per unit
c. If the period of consideration is 2 years, and the fund has distributed Rs. 3 per unit per year
as cash dividend, ascertain the Net return (Annualized).
d. Ascertain the Expenses ratio.
Note: Calculate figure in ₹ Crore up-to 3 decimal points.
303
Adish Jain CA CFA
Mutual Funds

Solution:
1) Calculation of NAV
Crore ₹
1 Value of Shares
79
a. Pharmaceutical Companies  465 141.2885
260
31
b. Construction Companies  450 66.4286
210
56
c. Service Sector Companies  480 97.7455
275
34
d. IT Companies  495 70.1250
240
10
e. Real Estate Companies  410 16.0784
255
2. Investment in Bonds
12 Cr. × 14%
a. Listed Bonds 19.00
0.08842
b. Unlisted Bonds 7.000
3. Cash and Cash Equivalents 1.500
4. Less: Expense Payable (3.500)
NAV of the Fund 415.665
(ii) NAV of the Fund Per Unit
415.665 crore
= = 98.9678 i.e., ₹ 98.97
4.20 crore
(iii) Self Note: To calculate return we need to have NAV0 (that is NAV 2 years back), we have
the price details of shares and bonds of 2 years back but details of cash and expense payable
is missing. Hence assumed it to be zero.
229 crore
Calculation of NAV0 = = 54.5238 i.e., ₹ 54.52
4.20 crore
D + NAV1 − NAV0 12
Net Return =  100 
NAV0 24
2 × 3 + 98.9678 – 54.5238 12
=  100 
54.5238 24
= 46.26%

304
Adish Jain CA CFA
 Mutual Funds

415.665 + 229
(iv) Average Total NAV = = 322.3325
2
Annual Expenses
Expense ratio: =
Average NAV
4.80 + 1.50 + 0.38
2
=  100
322.3325
= 1.04%

QUESTION 10:
N 17 | N 11 | M 11 | M 06 | RTP M 12

SBI mutual fund has a NPV of Rs. 8.50 at the beginning of the year. At the end of the year NPV
increases to Rs. 9.10. Meanwhile fund distributes Rs. 0.90 as dividend and Rs. 0.75 as capital gains.
a. What is the fund’s return during the year?
b. Had these distributions been re-invested at an average NAV of Rs. 8.75 assuming 200 units
were purchased originally. What is the return?
c. Which option is preferable?
Solution:
(i) Funds return = 0.90 + 0.75 + 9.10 − 8.50 = 26.47%
8.50
(ii) If all dividends and capital gain are reinvested into additional units at ₹ 8.75 per unit the
position would be.
Total amount reinvested = (0.90 + 0.75) x 200 = ₹ 330
₹ 330
Additional units allotted = = 37.71 Units
8.75
Closing number of units = 200 + 37.71 = 237.71
(NAV1 × n1 ) - (NAV0 × n0 )
Return =
(NAV0 × n0 )
= 237.71 9.10 − 200 8.50
200 8.50
= 27.24%
(iii) Second option is preferable as the return is higher in this case

305
Adish Jain CA CFA
Mutual Funds

QUESTION 11:
N 12

The following information is extracted from Steady Mutual Fund’s Scheme:

- Asset value at the beginning of the month - Rs. 65.78
- Annualised return - 15 %
- Distributions made in the nature of Income - Rs. 0.50 and Rs. 0.32
& Capital gain (per unit respectively).
You are required to:
a. Calculate the month end net asset value of the mutual fund scheme (limit your answers to
two decimals).
b. Provide a brief comment on the month end NAV.
Solution:
NAV1 - NAV0 + D + CG
(i) Annual Return =
NAV0
0.50 + 0.32 + NAV1 − 65.78 12
15 =  100
65.78 1
NAV1 = 65.78
(ii) Closing NAV is the same as opening NAV i.e., ₹ 65.78

QUESTION 12:
M 21 | N 16 | M 15 | M 13 | N 09 | N 04 | RTP

Mr. K has invested in three Mutual fund schemes as per details below:
Particulars MF A MF B MF C
Date of investment 01.12.2018 01.01.2019 01.03.2019
Amount of investment Rs. 5,00,000 Rs. 10,00,000 Rs. 5,00,000
Net Asset Value (NAV) at entry date Rs. 10.50 Rs. 10 Rs. 10
Dividend received upto 31-03-2019 Rs. 9,500 Rs.15,000 5,000
NAV as at 31-03-2019 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. K upto 31-03-2019, taking the year consisting of 365 days.
Provide a brief comment on the course of action he should take for future period.
(Calculation should be upto three decimal places)
Solution:
Calculation of effective yield on per annum basis in respect of three mutual fund schemes to Mr.
K up to 31-03-2019:
306
Adish Jain CA CFA
 Mutual Funds

Particulars MF A MF B MF C
(a) Investments Rs. 5,00,000 Rs. 10,00,000 Rs. 5,00,000
(b) Opening NAV Rs. 10.50 Rs. 10 Rs. 10
(c) No. of units (a/b) 47,619.048 1,00,000 50,000
(d) Unit NAV on 31-3-2019 Rs. 10.40 Rs. 10.10 Rs. 9.80
(e) Total NAV on 31-3-2019 (c x d) ₹4,95,238.099 ₹ 10,10,000 ₹ 4,90,000
(f) Increase / Decrease of NAV (e - a) (₹ 4,761.901) ₹ 10,000 (₹ 10,000)
(g) Dividend Received ₹ 9,500 ₹ 15,000 ₹ 5,000
(h) Total yield (f + g) ₹ 4,738.099 ₹ 25,000 (₹ 5,000)
(i) Number of Days 121 90 31
(j) Effective yield p.a. (h/a x 365/i x 100) 2.859% 10.139% (-) 11.774%
Comments: Since the Effective Yield in Scheme C is negative and that of Scheme A is much lower
than Scheme B, it is advised that Mr. K should redeem the investments in Scheme A and Scheme
C and the proceeds should be invested in Scheme B in the next period.

QUESTION 13:
N 23

Mr. K has invested in three Mutual fund schemes as per details below:
Particulars MF A MF B MF C
Date of investment 01.06.2022 01.07.2022 01.08.2022
Net Asset Value (NAV) at entry date ₹ 11 ₹ 10.5 ₹ 12
Dividend received upto 31-03-2023 ₹ 12,500 ₹ 17,000 ₹ 4,000
NAV as at 31-03-2023 ₹ 11.25 ₹ 11.48 ₹ 10.80
Increase/(Decrease) in NAV (₹) ₹ 22,727,27 ₹ 93,333.33 (₹ 50,000)
Effective Yield per annum 4.2296% 14.6978% -13.8190%
Ignore Entry/Exit load expenditure.
Assume 365 days in a year. Round off the investment to nearest ₹100.
You are required to calculate:
a. The amount of investment made initially by Mr. S in these schemes.
b. Number of units invested in the three schemes by Mr. S.
Advise also whether he can continue to hold this investment or can he redeem now.
Solution:
Amount of investment & number of units invested
Particulars MF A MF B MF C

307
Adish Jain CA CFA
Mutual Funds

(a) Opening NAV (₹) ₹ 11 ₹ 10.5 ₹ 12

(b) Closing NAV (₹) ₹ 11.25 ₹ 11.48 ₹ 10.80
(c) Increase in NAV per unit (₹) [b – a] ₹ 0.25 ₹ 0.98 (₹ 1.20)
(d) Total Inc./(Dec.) in NAV (₹) 22,727,27 93,333.33 (50,000)
(e) No. of units invested [d/c] 90,909.08 95,238.09 41,666.67
(f) Amount of Investment [a x e] 10,00,000 10,00,000 5,00,000
Advice: Since there is no entry and exit load, he can sell the MF B and MF C and continue to hold
investment in MF A.

QUESTION 14:
M 18

Mr. Y has invested in the three mutual funds (MF) as per the following details:
Particulars MF ‘X’ MF ‘Y’ MF ‘Z’
Amount of Investment (Rs.) 2,00,000 4,00,000 2,00,000
Net Assets Value (NAV) at the time of purchase (Rs.) 10.30 10.10 10
Dividend Received up to 31.03.2018 (Rs.) 6,000 0 5,000
NAV as on 31.03.2018 (Rs.) 10.25 10 10.20
Effective Yield per annum as on 31.03.018 (percent) 9.66 -11.66 24.15
Assume 1 year = 365 days
Mr. Y has misplaced the documents of his investment. Held him in finding the date of his original
investment after ascertaining the following:
a. Number of units in each scheme;
b. Total NAV;
c. Total Yield; and
d. Number of days investment held.
e.
Solution:
(i) MFx MFy MFz
Number of units = 2,00,000/10.30 = 4,00,000/10.10 = 2,00,000/10
= 19,417.48 = 39,603.96 = 20,000

(ii) Total NAV = 19,417.48 × 10.25 = 39,603.96 × 10 = 20,000 × 10.20

= 1,99,029.17 = 3,96,039.6 = 2,04,000
= 7,99,068.77 i.e., ₹ 8,00,000

308
Adish Jain CA CFA
 Mutual Funds

NAV1 - NAV0 + D + CG
(iii) Total Yield =
NAV0
NAV1 199,029.17 396,039.6 204,000
(-) NAV0 200,000 400,000 200,000
+ Dividend 6,000 0 5,000
Total 5029.17 (3960.4) 9,000
10,068.77
10,068.77
Total Yield =  100 = 1.2586%
8,00,000
(iv) No. of Days Investment Held
Let No. of days be X Y Z
Initial Investment (₹) 2,00,000 4,00,000 2,00,000
Yield (₹) 5,029.17 -3,960.40 9,000.00
Yield (%) 2.5146 - 0.9901 4.5
Period of Holding (Days) 2.5146 -0.9901 4.5
=  365 =  365 =  365
9.66 -11.66 24.15
= 95 Days = 31 Days = 68 Days

(v) Date of Investment

26.12.17 28.02.18 22.01.18

QUESTION 15:
M 22

Mr. D has invested in the three mutual funds (MF) as per the following details:
Particulars MF A MF B MF C
Amount of Investment (Rs.) 2,00,000 5,00,000 4,00,000
Net Assets Value (NAV) at the time of purchase (Rs.) 10.00 25.00 20.00
Dividend yield up to 31.03.2022 3% 5% 4%
NAV as on 31.03.2022 (Rs.) 10.50 22.80 20.80
Annualized Yield per annum as on 31.03.2022 9.733% -11.185% 15%
Assume 1 year = 365 days
Mr. Y has misplaced the documents of his investment.
You are required to help Mr. D to find out following:
a. Number of units allotted in each scheme;
b. Value of Investment as on 31.03.2022;
309
Adish Jain CA CFA
Mutual Funds

c. Holding period of his investments on days on 31.03.2022

d. Dates of original investments.
e. Total returns on investments.
f. Assuming the past performance of all three scheme will continue for next one year, what
action should investor take? What will be the expected return for the next one year after the
above action?
g. Will your answer in point (f) change if the mutual fund charges exit load of 5% if the
investment is redeemed within one year? If so, advice the investor what and when the action
to be taken to optimise the returns.
Solution:
a) Number of units of each scheme:
A 2,00,000
= 20,000
10
B 5,00,000
= 20,000
25
C 4,00,000
= 20,000
20
b) Value of Investment on 31.03.2022
A 20,000  10.5 = 2,10,000

B 20,000  22.8 = 4,56,000

C 20,000  20.8 = 4,16,000

c) Periodic yields on each fund till 31.03.2022

MF Capital Gain Yield Dividend Yield Total Yield

10.5 - 10
A = 5% 3% 8%
10
22.8 - 25
B = -8.8% 5% -3.8%
25
20.8 - 20
C = 4% 4% 8%
20

310
Adish Jain CA CFA
 Mutual Funds

Number of days investments held:

A 8%
× 365 = 300 Days
9.733%
B -3.8%
× 365 = 124 Days
-11.185%
C 8%
× 365 = 195 Days
15%
d) Original Date of Investment:
A 04.06.2021
B 27.11.2021
C 17.09.2021
e) Total Yield:
A = 2,00,000 × 8% = 16,000
B = 5,00,000 × -3.8% = - 19,000
C = 4,00,000 × 8% = 32,000
Total Yield (₹) = 29,000
Total Yield (₹)
Total Yield (%) =
Total Investment
29,000
= × 100 = 2.64%
11,00,000
f) If past of all three schemes will continue for next one year, the investor should redeem the
units of MFs ‘A’ and ‘B’ and invest the proceeds in MF ‘C’. The expected return next will be
15%.
g) if MF charges exit load of 5%:
MF A MF B
Holding period 300 days 124 days
Days left to complete the year 65 days 241 days
Additional return in MF C for days left 15 - 9.733 15 - (-11.185%)
× 65 × 65
365 365
= 0.94% = 17.29%
Additional cost of Exit Load 5% 5%
Decision Redeem after 65 days Redeem now
If the Mutual funds are charging exit load of 5%, if investment is redeemed within one year,
then investor should get redeemed units of MF ‘B’ now and units of MF ‘A’ after 65 days.

311
Adish Jain CA CFA
Mutual Funds

QUESTION 16:
N 13 | RTP N 17 | N 15 | N 06

On 01-07-2010, Mr. X invested Rs. 50,000/- at initial offer in Mutual Funds at a face value 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. On 31-03-2013, Mr. X
redeemed all his 6271.98 units when his annualized yield was 71.50% over the period of holding.
Calculate NAV as on 31-03-2011, 31-03-2012 and 31-03-2013.
For calculations consider a year of 12 months.
Solution:
Self-note: This is a reinvestment plan since number of units are changing from 5,000 to 6271.98
units. This question has been solved using two methods:
Methods 1: Formula of Return from Mutual Fund
As on 31/3/11
No. of units on 1/7/2010 = 50,000 = 5,000
10
Total dividend reinvested = 5000 × 10 × 10% = 5000
5000
Total no. of units on 31/3/2011 = 5000 +
NAV1
(NAV1 × n1 ) - (NAV0 × n0 ) 12
Annualized Return = × 100 ×
(NAV0 × n0 ) 9
5000
[NAV1 × (5000 + )] - 50,000 12
NAV1
120 = × 100 ×
50,000 9
NAV1 = 18
No. of units = 5,000/18 + 5,000 = 5,277.78
As on 31/3/12
Since, there is no dividend or capital gain during the year 2012-2013, therefore closing number of
units on 31/03/2012 will be same as 31/03/2013 i.e., 6,271.93
Total Div & CG in 2011-12 = 5277.78 × (2 + 0.6)
= 13,722.23
Total no. of units on 31/3/2012 = Units of 31/3/2011 + units allotted for reinvestment
13722.23
6,271.98 = 5,277.78 +
NAV2

312
Adish Jain CA CFA
 Mutual Funds

NAV2 = 13.80
As on 31/3/13
Calculation of NAV3 on 31/3/2013
(NAV3 × n3 ) - (NAV0 × n0 ) 12
Annual Return = × 100 ×
(NAV0 × n0 ) 33
(NAV3 × 6271.98) - 50,000 12
71.5 = × 100 ×
50,000 33
NAV3 = 23.65

Methods 2: Common sense approach followed by ICAI

Self-note: Suggested answer missed to consider CG of ₹ 0.6 per unit in the year 2011-12 in its
solution.
Yield for 9 months (120% x 9/12) = 90%
Market value of Investments as on 31.03.2011 = ₹ 50,000/- + (₹ 50,000x 90%)
= ₹ 95,000/
Therefore, NAV as on 31.03.2011 = (₹ 95,000 - ₹ 5,000)/5,000 = ₹ 18.00
₹ 5,000
Since dividend was reinvested by Mr. X, additional units acquired = = 277.78 unit
₹ 18
Therefore, units as on 31.03.2011 = 5,000 + 277.78 = 5,277.78
Alternatively, units as on 31.03.2011 = (₹ 95,000/₹18) = 5,277.78
Dividend as on 31.03.2012 = 5,277.78 x ₹ 10 x 0.2 = ₹10,555.56
Let X be the NAV on 31.03.2012, then number of new units reinvested will be = ₹10,555.56/X.
Accordingly, 6,271.98 units shall consist of reinvested units and 5277.78 (as on 31.03.2011).
Thus, by way of equation it can be shown as follows:
5277.78 × (2 + 0.6)
6271.98 = + 5277.78
X
Therefore, NAV as on 31.03.2012 = X = ₹ 13.80
NAV as on 31.03.2013 = ₹ 50,000 (1 + 0.715 x 33/12)/6,271.98 = ₹ 23.65

QUESTION 17:
N 19 | M 19 | N 08 | RTP

Sun Moon Mutual Fund (Approved Mutual Fund) sponsored open-ended equity-oriented scheme
“Chanakya Opportunity Fund”. There were three plans viz. ‘A’ – Dividend Reinvestment Plan, ‘B’
– Bonus Plan & ‘C’ – Growth Plan.

313
Adish Jain CA CFA
Mutual Funds

At the time of Initial Public Offer on 1.4.1999, Mr. Anand, Mr. Bacchan & Mrs. Charu, three
investors invested Rs. 1,00,000 each & choose ‘B’, ‘C’ & ‘A’ Plan respectively.
The History of the Fund as follows:
Date Dividend % Bonus Ratio Net Asset Value per Unit (F.V. Rs.10)
Plan A Plan B Plan C
28.07.2003 20 30.70 31.40 33.42
31.03.2004 70 5:4 58.42 31.05 70.05
31.10.2007 40 42.18 25.02 56.15
15.03.2008 25 46.45 29.10 64.28
31.03.2008 1:3 42.18 20.05 60.12
24.03.2009 40 1:4 48.10 19.95 72.40
31.07.2009 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 per cent only on sale/redemption of units.
d. Ignore Education Cess.
Solution:
Plan A: Mrs. Charu
Dividend Total Unit Total number
Dates NAV
per unit Dividend reinvested of units
01-04-1999 10,000
28-07-2003 2 20,000 30.7 651.47 10,651.47
31-03-2004 7 74,560.29 58.42 1276.28 11,927.75
31-10-2007 4 47,711.00 42.18 1131.13 13,058.88
15-03-2008 2.5 32,647.20 46.45 702.85 13,761.73
24-03-2009 4 55,046.92 48.1 1144.43 14,906.16

Total sale proceeds: 14,906.16  53.75 8,01,206.10

Less: STT @ 0.2% (1,602.41)
7,99,603.69
Less: STCG @ 10%: (53.75 – 48.10)  1144.43  10% (646.60)
7,98,957.09

314
Adish Jain CA CFA
 Mutual Funds

(NAV1 × n1 ) - (NAV0 × n0 ) 12
Annual Return = × 100 ×
(NAV0 × n0 ) 124
7,98,957.09 - 1,00,000 12
= × 100 ×
1,00,000 124
= 67.64%
Plan B: Mr Anand
Date Bonus Ratio Units Issued Total
1/4/1999 0 10,000 10,000
31/3/04 5:4 12,500 22,500
31/3/08 1:3 7,500 30,000
24/3/09 1:4 7,500 37,500

Total sale proceeds: 37,500  22.98 8,61,750

Less: STT @ 0.2% (1,723.5)
8,60,026.5
Less: STCG @ 10%: (22.98 – 19.95)  7500  10% (2,272.5)
8,57,754
8,57,754 − 1,00 ,000 12
Annualized Return =  100 
1,00 ,000 124
= 73.33%
Plan C: Mr. Bacchan
Total sale proceeds: 10,000  82.07 8,20,700
Less: STT @ 0.2% (1,641.4)
8,19,058.6
8,19 ,058.6 − 1,00 ,000 12
Annualized Return =  100 
1,00 ,000 124
= 69.59%

QUESTION 18:
M 21

M/s. Strong an AMC has floated a dividend bonus plan on 1st April, 2016 at a certain net asset
value (NAV). The fund has a robust growth and has declared a bonus of 1:5 (1 bonus unit for 5
right units held) on 30th September, 2017 and a second bonus of 1:4 (1 bonus unit for 4 right

315
Adish Jain CA CFA
Mutual Funds

units held) on 30th September 2019. The fund, as on 31st March 2021, has generated an average
yield of 17.5%.
Mr. Optimistic has made an investment of ₹ 16 lakhs in the plan before the declaration of the first
bonus and remain invested thereafter.
The following information is also available:
Date 01.04.2016 30.09.2017 30.09.2019 31.03.2021
NAV (₹) ? 85 92 100
You are required to advise to Mr. Optimistic the opening NAV, which is required by him to
calculate the capital appreciation.
Solution:
Method 1: Using formula of Return from Mutual Funds
Let the number of units on 01/04/2016 (n0) be X
Date Bonus Ratio Units Allotted Total Units
01-04-2016 X X
-
30-09-2017 1:5 X × 1⁄5 = 0.2 X 1.2 X
1:4
30-09-2019 1.2 X × 1⁄4 = 0.3 X 1.5 X

(NAV1 × n1 ) - (NAV0 × n0 ) 12
Annual Return = × 100 ×
(NAV0 × n0 ) 60
(100 × n1 ) - 16,00,000 12
17.5 = × 100 ×
16,00,000 60
n1 = 30,000
30,000
Number of units on 01/04/2016 (n0) = = 20,000 units
1.5
16,00,000
Opening NAV = = ₹ 80 per unit
20,000

Method 2: Using common sense followed by ICAI

(a) Amount invested by Mr. Optimistic as on 01/04/2016 ₹ 16,00,000
(b) Gain during 5 years (16,00,000 x 17.5% x 5 years) ₹ 14,00,000
(c) Value of investment as on 31/03/2021 (a + b) ₹ 30,00,000
(d) NAV as on 31/03/2021 ₹ 100 per Unit
(e) Total number of units as on 31/03/2021 (c / d) 30000 Units
Total units before second bonus = 30,000 x 4/5 24000 Units
Total units before first bonus = 24,000 x 5/6 20000 Units
316
Adish Jain CA CFA
 Mutual Funds

NAV as on 01/04/2016 = 16,00,000/ 20000 ₹ 80 per Unit

QUESTION 19:
N 21

M/S Enterprise, an Asset management Company (AMC) on 1.04.2016 has floated a scheme
“Dividend Plan”. Mr. X, an investor, has invested in the scheme. Dividend is given in the form of
units. The details (except the issue price) are as follows:
Date Dividend (%) NAV
1.04.2016 ?
31.03.2018 20 48
31.03.2019 25 50
31.03.2020 30 45
31.03.2021 - 49
Initial Investment (₹) ₹ 18,40,000
Average Profit (₹) over 5 years ₹ 54,576
You are required to calculate the issue price of the scheme as on 01.04.2016 to ascertain the
capital appreciation. Assume face value of units as ₹ 10/-
Solution:
Particulars ₹
(a) Amount invested by Mr. X 18,40,000
(b) Gains during 5 years [ ₹ 54,576 × 5] 2,72,880
(c) Value of investment as on 31/3/21 (a + b) 21,12,880
(d) NAV as on 31.03.21 ₹ 49 per unit
(e) Total Number of units as on 31.03.21 (c ₹ 43,120 units
Let us as assume the no. of units on 31.03.2020 before dividends be N3, then:
N3 × 10 × 30%
N3 + = 43,120
45
N3 = 40,425
Let us as assume the no. of units on 31.03.2019 before dividends be N2, then:
N2 × 10 × 25%
N2 + = 40,425
50
N2 = 38,500
Let us as assume the no. of units on 31.03.2018 before dividends be N1, then:

317
Adish Jain CA CFA
Mutual Funds

N1 × 10 × 20%
N1 + = 38,500
48
N1 = 36,960
Hence, no. of units on 01.04.2016 = 36,960
18,40,000
NAV as on 01.04.16 = = ₹ 49.78
36,960
Thus, issue price of unit is ₹ 49.78

QUESTION 20:
M 23 | N 21 | M 21| N 20

M/S. Corpus an AMC, on 1.04.2015 has floated two schemes viz. Dividend Plan and Bonus Plan.
Mr. X, an investor has invested in both the schemes. The following details (except the issue price)
are available:
NAV
Date Dividend Bonus Ratio Dividend Bonus
Plan Plan
1.04.2015 ? ?
31.12.2016 1 : 4 (One unit on 4 units held) 47 40
31.03.2017 12 48 42
31.03.2018 10 50 39
31.12.2018 1 : 5 (One unit on 5 units held) 46 43
31.03.2019 15 45 42
31.03.2020 49 44
Additional Details
Investment (₹) 9,20,000 10,00,000
Average Profit (₹) 27,748.6
Average Yield (%) 6.4
You are required to calculate issue price of both the schemes as on 01.04.2015
Solution:
Self-note: FV of the MF units is missing. Looking at NAV numbers, assumption of FV of ₹ 10 looks
to be the most logical. Dividend plan is assumed as dividend reinvestment plan.
Average Annual Gain over a period of 5 years 27,748.6
Total Gain over a period 5 years (27,748.6  5) 1,38,743
Initial Investment 9,20,000
318
Adish Jain CA CFA
 Mutual Funds

Total value of Investment 10,58,743

NAV as on 31/03/2020 49
No. of units on 31/03/2020 21,607
Let us as assume the no. of units on 31.03.2019 before dividends be N3, then:
N3 × 10 × 15%
N3 + = 21,607
45
N3 = 20,910
Let us as assume the no. of units on 31.03.2018 before dividends be N2, then:
N2 × 10 × 10%
N2 + = 20,910
50
N2 = 20,500
Let us as assume the no. of units on 31.03.2017 before dividends be N1, then:
N1 × 10 × 12%
N1 + = 20,500
48
N1 = 20,000
Hence, no. of units on 01.04.2015 = 20,000
9,20,000
NAV as on 01.04.15 = = ₹ 46
20,000
Thus, issue price of unit is ₹ 46

Bonus Plan
Let the opening no. of units be x
Dates No. of Bonus units issued
1/4/15 X X
31/12/16 0.25x 1.25x
31/12/18 0.25x 1.5x
(NAV1 × n1 ) - (NAV0 × n0 ) 12
Annual Return = × 100 ×
(NAV0 × n0 ) 60
44  1.5x − 10 ,00 ,000 12
6.4 =  100 
10 ,00 ,000 60
X = 20,000
10 ,00 ,000
Issue Price = = 50
20 ,000
319
Adish Jain CA CFA
Mutual Funds

QUESTION 21:
N 19 | M 09 | RTP

Mr. Alex, a practicing Chartered Accountant, can earn a return of 15 percent by investing in equity
shares on his own. He is considering a recently announced equity based mutual fund scheme in
which initial expenses are 6 percent and annual recurring expenses are 2 percent.
1. How much should the mutual fund earn to provide Mr. Alex a return of 15 percent per
annum?
2. Mr. Alex’s current Annual Professional Income is Rs. 40 Lakhs. His portfolio value is Rs. 50
Lakhs and now he is spending 10% of his time to manage his portfolio. If he spends this time
on profession, his professional income will go up in same proportion. He is thinking to invest
his entire portfolio into a Multicap Fund, assuming the fund’s NAV will grow at 13% per annum
(including dividend).
You are requested to advise Mr. Alex, whether he can invest the portfolio into Multicap Funds? If
so, what is the net financial benefit?
Solution:
(i) Return to be earned by Mutual Fund
Re turn
= + Recuing exp (%)
1 − Intial exp %
0.15
= + 0.02
1 − 0.06
= 17.96%
(ii) Total Income, if Mr. Alex manages his portfolio:
Annual Professional Income = 40,00,000
From equity (50,00,000  15%) = 7,50,000
Total Income = 47,50,000
Total Income if amount invested in multi cap fund:
Annual Professional Income (40,00,000 + 10%) 44,00,000
From equity (50,00,000  13%) 6,50,000
50,50,000
Since total income of Mr. Alex increases by investing into multi-cap fond, therefore can invest the
portfolio in multi-cap funds
Net financial Benefit = 50,50,000 – 47,50,000
= 3,00,000

320
Adish Jain CA CFA
 Mutual Funds

QUESTION 22:
M 21 | N 18

The Asset Management Company of the mutual fund (MF) has declared a dividend of 9.98% on
the units under the dividend reinvestment plan for the year ended 31st March, 2021. The
investors are issued additional units for the dividend at the rate of closing Net Asset Value (NAV)
for the year as per the conditions of the scheme.
The closing NAV was ₹ 24.95 as on 31st March, 2021. An investor Mr. X who is having 20,800 units
at the year-end has made an investment in the units before the declaration of the dividend and
at the rate of opening NAV plus an entry load of ₹ 0.04. The NAV has appreciated by 25% during
the year.
Assume the face value of the unit as ₹ 10.00.
You are required to calculate:
a. Opening NAV,
b. Number of the units purchased,
c. Original amount of the investment.
Solution:
(i) Let N be the opening NAV, then
N (1 + 0.25) = ₹ 24.95
N = ₹ 19.96
i.e., beginning NAV = ₹ 19.96
(ii) Let X be the number of units purchased
Then ending units = 20,800
Accordingly,
0.998X
20,800 = X +
24.95
24.05X + 0.998X
20,800 =
24.95
X = 20000
Thus, number of units to be purchased = 20,000
(iii) Original amount of investment:
Initial NAV ₹ 19.96
Entry Load ₹ 0.04
₹ 20.00
Number of funds purchased ₹ 20,000
Amount of investment ₹ 4,00,000

321
Adish Jain CA CFA
Mutual Funds

QUESTION 23:
N 15 | J 21 | RTP

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 lakh
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
a. Income available for distribution;
b. Issue price at the end of April;
c. repurchase price at the end of May; and
d. net asset value (NAV) as on 30th June.
Solution:
(i) Income Available for Dist.
Total Units Per Unit
Income
Income of April 22.950 → 300 → 0.0765
Amount collected as Div. Equal. 0.459  6  0.0765
23.409 306 0.0765
Income of May 34.425 → 306 → 0.1125
57.834 306 0.189
Amount paid as Div. Equal. (0.567)  (3)  0.189
57.267 303 0.189
Income of June 45.450 303 0.15
Income available for distribution 102.717 303 0.339
Income distributed @ 70% (71.9019) 303 (0.2373)
30.8151 0.1017
(ii) Issue price at end of April
Opening NAV 18.75
Add: Entry load @ 2% 0.375
322
Adish Jain CA CFA
 Mutual Funds

19.125
Dividend equalisation 0.0765
Issue price 19.2015
(iii) Repurchase price for may
Opening NAV 18.75
Less: Exit load @ 2% (0.375)
18.375
Add: Dividend equalisation 0.189
Repurchase price 18.564
(iv) NAV as on 30th June
Opening Balance (300  18.75) 5625
Add: Portfolio App 425.47
Income for April 22.950
Income from May 34.425
Income from June 45.450
Add: Unit Issued (6  19.2015) 115.209
Less: Unit Redeemed (3  18.564) (55.692)
Less: 70% Income Distributed (71.9019)
Total NAV 6,140.9101
 No. of units 303
Per Unit 20.2670

QUESTION 24:
RTP

ANP Plan, a hedge fund currently has assets of ₹ 20 crore. CA. X, the manager of fund charges fee
of 0.10% of portfolio asset. In addition to it he charges incentive fee of 2%. The incentive will be
linked to gross return each year in excess of the portfolio maximum value since the inception of
fund. The maximum value the fund achieved so far since inception of fund about one and half
year ago was ₹ 21 crores.
You are required to compute the fee payable to CA. X, if return on the fund this year turns
out to be (a) 29%, (b) 4.5%, (c) -1.8%
Solution:
Amount in ₹ Cr
29% 4.5% -1.8%
Closing Assets 25.8 20.9 19.64
(20+29%) (20+4.5%) (20 – 1.8%)

323
Adish Jain CA CFA
Mutual Funds

Less: Max Value (21) (21) (21)

Excess 4.8 0 0
 Incentive fee (%) 2% – –
0.096
Add: Fund charges @ 0.1% of 20 Cr. 0.02 0.02 0.02
0.116 0.02 0.02

QUESTION 25:

From the below data of returns of Index Fund and Sensex, calculate annualized tracking error.
Month MF monthly Return (%) Sensex monthly Return (%)
Feb 3.00 6.67
Mar 16.50 14.58
Apr 8.33 13.64
May 16.92 12.00
Jun 11.84 14.29
Jul 5.88 9.38
Solution:
Month MF Return (%) Sensex Return (%) d (d - d̅ )2
Feb 3.00 6.67 -3.67 5.40
Mar 16.50 14.58 1.92 10.66
Apr 8.33 13.64 -5.30 15.68
May 16.92 12.00 4.92 39.27
Jun 11.84 14.29 -2.44 1.21
Jul 5.88 9.38 -3.49 4.62
Total - 8.06 76.83
∑d -8.06
d̅ = = = -1.34
n 6
2
∑ (d - d̅ ) 76.83
Monthly Tracking Error =√ =√ = = 3.92
n-1 5
Annualized Tracking Error = 3.92  √12 = = 13.58%

324
Adish Jain CA CFA