BUSINESS VALUATION
The basic valuation
methods of holdings by the Mutual funds should be done by keeping in view the
following elements:
•For listed securities –take last sale price
quoted in the stock exchange dealing list
•For OTCEI securities –take bid/ask price as
may be relevant on case to case basis
• • Trustees may
determine market value at a reasonable price as per current market at which the
investors would buy at fairly reasonable rate.
•For short term investments the basis of
valuation should be the amortized cost.
1 Net Assets Value It
is a parameter used to measure the operational efficiency of mutual funds.
The intrinsic value of a unit under a particular scheme is referred to as the
NAV of the scheme. The value gives an idea of the amount that may be obtained
by the unit holder on its sale to the mutual fund company.
The main components of
Net assets value are • Investment
income and expenses • Capital stocks and distribution
Investment Income and Expenses: Investment
income covers the following major items:
1. Dividend
income from accounting point of view
2.
Capital changes i.e., resulting from
return on capital, stock dividends, bonus shares, rights shares and stock
split, mergers, litigation settlement, tax treatment.
3. Interest
income from fixed income investment
4. Costs
of carrying on Mutual fund business as highlighted in the Enclosure I
2 Capital Stock and
Distribution - The capital stock and distribution
involving share purchases and sales or redemptions.
Calculation of NAV
The NAV calculation should include the following
elements for open end funds.
1. Investment
at value recorded on first business day after trade transaction.
2. Changes
in outstanding shares on first business day after trade transaction.
3. Dividend
and distribution to shareholder ex-date.
4. Expenses
(estimated and accrued to date of calculation)
5.
Dividends receipts from investments
ex-date 6. Interest and other income (estimated and accrued to date of
calculation) 7. Other assets /organization costs.
Formula for calculating NAV is given
below:
NAV = X- L divided by Y or Net assets /
No. of shares outstanding
Where, X= market value
of investments and other assets. L= Liabilities Y = fund shares outstanding.
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