(a) Net Value (NAV) It is the amount which a unit holder would receive if the mutual funds – were wound up. There is a Valuation Rule for valuation of assets which depends on the nature of assets. The asset values obtained on the basis of this rule is further adjusted on account of additions (in form of dividend and interest accrued and other receivables) and deductions (in form of expenses accrued and other short-term and longterm liabilities). Net Asset of the Scheme = Market Value of Investments + Receivables+ Other accrued income + Other Assets Accrued Expenses Other Payables Other Liabilities – – – NAV = Net Assets of Scheme Number of Units Cost of Mutual Funds Broadly cost of Mutual Fund carries two components: – (i) Initial Expenses Attributing to establishing a scheme under a scheme. – (ii) Ongoing Recurring Expenses Mainly consists of Cost of – employing experts, Administrative Costs and Advertisement Cost. 6. Computation of Returns Mainly investors derive three types of income from owning mutual fund units: Cash Dividends, • Capital Gain Disbursements, and • Changes in the Fund’s NAV. • The formula for computing annual return is as follows: = D 1 1 1 0 0 CG (NAV NAV ) 100 NAV + + − × Where, D1 Dividend = CG1 = Realised Capital Gain NAV1 NAV0 = Unrealised Capital Gain – NAV0 = Base NAV 7. Criteria for Evaluating the Performance Following three ratios are used to evaluate the performance of mutual funds: (a) Sharpe This ratio measures the return earned in excess of the riskfree rate (normally – Treasury Instruments) on a portfolio to the portfolio’s total risk as measured by the Standard Deviation in its return and over the measurement period. The formula to calculate the ratio is as follows: Standard Deviation of Portfolio S = Return Portfolio Return of Risk Free Investment − (b) Treynor This ratio is similar to Sharpe Ratio however, with a difference that it uses Beta – instead of Standard Deviation. The formula to calculate this ratio is as follows: T = Return of Portfolio of Risk Free Investment Beta of Portfolio −Return
(a) Net Value (NAV) – It is the amount which a unit holder would receive if the mutual funds were wound up. There is a Valuation Rule for valuation of assets which depends on the nature of assets. The asset values obtained on the basis of this rule is further adjusted on account of additions (in form of dividend and interest accrued and other receivables) and deductions (in form of expenses accrued and other short-term and longterm liabilities). Net Asset of the Scheme = Market Value of Investments + Receivables+ Other accrued income + Other Assets – Accrued Expenses – Other Payables – Other Liabilities NAV = Net Assets of Scheme Number of Units Cost of Mutual Funds – Broadly cost of Mutual Fund carries two components: (i) Initial Expenses – Attributing to establishing a scheme under a scheme. (ii) Ongoing Recurring Expenses – Mainly consists of Cost of employing experts, Administrative Costs and Advertisement Cost. 6. Computation of Returns Mainly investors derive three types of income from owning mutual fund units: • Cash Dividends, • Capital Gain Disbursements, and • Changes in the Fund’s NAV. The formula for computing annual return is as follows: = 1 D 1 1 0 0 CG (NAV NAV ) 100 NAV + + − × Where, D1 = Dividend CG1 = Realised Capital Gain NAV1 – NAV0 = Unrealised Capital Gain NAV0 = Base NAV 7. Criteria for Evaluating the Performance Following three ratios are used to evaluate the performance of mutual funds: (a) Sharpe – This ratio measures the return earned in excess of the riskfree rate (normally Treasury Instruments) on a portfolio to the portfolio’s total risk as measured by the Standard Deviation in its return and over the measurement period. The formula to calculate the ratio is as follows: S = Standard Deviation of Portfolio Return Portfolio − Return of Risk Free Investment (b) Treynor – This ratio is similar to Sharpe Ratio however, with a difference that it uses Beta instead of Standard Deviation. The formula to calculate this ratio is as follows: T = Return of Portfolio −Return of Risk Free Investment Beta of Portfolio
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