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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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