Key Financial Numbers

As a participant in a mutual fund scheme, you should understand the following numbers:

1) Asset mix
2) Net asset value
3) Market price, repurchase price, and reissue price
4) Discount
5) Rate of return
6) Standard deviation
7) Ex – mark (or R2 )
8) Beta
9) Gross yield
10) Portfolio turnover ratio
11) Expense ratio

Asset Mix: The asset mix of a scheme refers to the allocation of the corpus of a scheme across three broad asset categories viz., stocks, bonds, and cash. An asset mix of 60: 30: 10 mean that 60 percent of the corpus is invested in stocks, 30 percent in bonds, and 10 percent in cash.

Net Asset Value: The net asset value (NAV) is the actual value of a share / unit on any business day. It is computed as follows:

NAV = Market value of the fund’s investments + Receivables + Accrued income – Liabilities – accrued expenses / Number of shares or units outstanding.

The calculation of NAV can be illustrated with the help of a simple example, as follows:

Name of the scheme : ABC
Size of the scheme : Rs 100 crore
Face value of the share : Rs 10
Number of outstanding shares : 10 crore
Market value of the fund’s
Investments : Rs 180 crore
Receivables : Rs 1 crore
Accrued income : Rs 1 crore
Liabilities : Rs 0.5 crore
Accrued expenses : Rs 0.5 crore
NAV : (180 + 1 +1 – 0.5 – 0.5) / 10
= Rs 18.1

Market Price, Repurchase Price and Reissue Price: A closed ended scheme has to be necessarily listed on a recognized stock exchange to ensure that its participants enjoy liquidity. Generally, the market price of a closed ended scheme tends to be lower than its NAV, if the market price is lower than the NAV, the scheme is said to be selling at a discount, if it is higher, the scheme is said to be selling at a premium. In addition to listing, the mutual fund may also offer the facility of repurchase. The repurchase price is usually linked to the NAV.

Unlike a closed ended scheme, an open ended scheme is not ordinarily listed to the stock exchange. Hence the mutual fund has to stand ready to repurchase and issue its units or shares on a continuing basis. The repurchase and reissue prices are, of course, closely linked to the NAV

Discount: Closed ended schemes typically sell at a discount, which may sometimes be very steep, over their NAV. Why? According to Benjamin Graham, the reason lies in the structure, not the performance of such schemes. They are perhaps not well suited for any important group of investors. The small and naïve investors are allured towards the open ended schemes as they are sold more aggressively; the large and sophisticated investors may find mutual funds, in general, not very appealing; the speculators also have little interest in the ordinary closed ended scheme as it lacks the excitement of a specific scrip.

Rate of Return: The periodic (the period may be one month, one quarter, one year or any other) rate of return on a mutual fund schemes is calculated as follows:

Rate of return for the period = NAV at the end of the period – NAV at the beginning of the period + Dividend paid during the period / NAV at the beginning of the period.

To illustrate the calculation of rate of return, consider the following data:

NAV (beginning) = Rs 16
NAV (ending) = Rs 17

Dividend paid = Re 1

Rate of Return = (17 – 16) + 1 / 16 = 12.5 percent

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