Sfm CA Final Mutual Fund

CA FINAL - SFM

Mutual Funds Introduction A trust pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instrument such as shares, debentures and other securities. The income earned from this investment and capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Returns

Investo r

Securiti es

Fund Manage r

Question 1 (Adapted) Consider the following data of a mutual fund scheme : Particulars Rs. In crore Value of investments 2,056.25 Receivables 158.25 Accrued in come 25.75 Other current assets 325.26 Liabilities 449.56 Accrued expenses 52.92 If the number of outstanding units is 200 core and sale charges is 1.5% on the NAV, what is the public offering price? Question 2 (Adapted) The following portfolio details of a fund are available : Stock Share Price (Rs.) A 2,00,000 35 B 3,00,000 40 C 4,00,000 20 D 6,00,000 25 The Fund has accrued management fees with the portfolio manager totaling Rs. 30,000. There are 40 lakhs share outstanding. What is the NAV of the fund ? if the fund is sold with a front end load of 5%, what is the sale price ? Question 3 (Adapted) Compiled By Rahul Malkan(RM)

Page 41

CA FINAL - SFM

Calculate the today’s NAV of flexi fund if the following details are given :Yesterday’s NAV = Rs. 12.87, Total number of outstanding units: 1.25 Crores Face value = Rs. 10. Expenses = Rs. 1 lakh [Assumes sale NAV& Repurchase NAV to be Rs. 12.87]. Appreciation of portfolio today 12 lakhs Units fresh subscription 2 lakhs Units redemption 0.75 lakhs Dividend received 1 lakhs Question 4 (Adapted) Yesterday's NAV Number of units outstanding yesterday Appreciation of the portfolio today Depreciation of the portfolio today Realized Gain today Realized Loss today Number of units issued today (Net) Dividend & Interest Operating Expenses Compute today's NAV.

12.5 12 lac 30 lac 10 lac 15 lac 12 lac 70000 at NAV 4.5 lac 1.2 lac

Question 5 (Nov 09 – 8 Marks) A mutual fund made an issue of 10,00,000 units of Rs. 10 each on January 01, 2008. No entry load was charged. It made the following investments : Rs. 50,000 Equity shares of Rs. 100 each @ Rs. 160 7% Government Securities

80,00,000

9% Debentures (Unlisted)

5,00,000

10% Debentures (Listed)

5,00,000

8,00,000

98,00,000 During the year, dividends of Rs. 12,00,000 were received on equity shares. Interest on all types of debt securities was received as and when due. At the end of the year equity shares and 10% debentures are quoted at 175% and 90% respectively. Other investments are at par. Find out the Net Asset Value (NAV) per unit given that operating expenses paid during the year amounted to Rs. 5,00,000. Also find out the NAV, if the Mutual Fund had distributed a dividend of Re. 0.80 per unit during the year to the unit holders.

Holding Period Yield HYP = Dividend distribution + Capital Gain distribution + Capital Appreciation x 100 PP Where Capital Appreciation = SP – PP PP = NAV + Entry Load SP = NAV – Exit Load After calculating HYP --- we have to calculate annualized return either by MMY – Multiply Approach

Compiled By Rahul Malkan(RM)

Page 42

CA FINAL - SFM n

EAY – Factor Approach i.e (1+r ) −1 Question 6 (Nov 04 – 6 Marks) A has invested in three Mutual Fund schemes as per details below: MF A MF B MF C Date of Investment 1.12.03 1.1.04 1.3.04 Amount of Investment ₹50,000 ₹1,00,000 ₹50,000 NAV on entry date ₹10.50 ₹10 ₹10 Dividend received up to 31.3.04 ₹950 ₹1500 Nil NAV as at 31.3.04 ₹10.40 ₹10.10 ₹9.80 What is the effective yield on per annum basis in respect of each of the three schemes to Mr. A upto 31.03.04? Question 7 (Nov 09 – 6 Marks) Mr. Sinha has invested in three Mutual fund schemes as per details below : Scheme X Scheme Y Date of Investment

Scheme Z

01.12.08

01.01.09

01.03.2009

₹5,00,000

₹1,00,000

₹50,000

Net Asset Value at entry date

₹10.50

₹10.00

₹10.00

Dividend received up to 31.03.2009

₹9,500

₹1,500

Nil

NAV as at 31.3.2009

₹10.40

₹10.10

₹9.80

Amount of Investment

You are required to calculate the effective yield on per annum basis in respect of each of the three schemes to Mr. Sinha up to 31.03.2009. Question 8 (Nov 03) A MF that had an NAV of ₹20 in the beginning of the month made an income and capital gain distribution of ₹0.0375 and ₹0.03 per share respectively during the month, and then ended the month with an NAV of ₹20.06. Calculating the monthly return. Question 9 (June 09 – 4 Marks) 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 Re.0.04 and Re.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. Question 10 (Nov 03) Mr. A can earn a return of 10% by investing in equity shares of its own. Now he is considering a recently announced equity based MF scheme in which initial expenses are 6% and annual recurring expenses of 2%. How much should the MF earn to provide Mr. A return of 10%? Question 11 (May 2010) A Mutual Fund has a NAV of Rs.20 on 1.12.09. During December 2009, it has earned a regular income of Re.0.03 per unit. On 31.12.09, the NAV was Rs.20.06. Calculate the monthly return and annual return. Question 12 (Adapted) A mutual fund has a net asset value (NAV) of ₹50 at the beginning of the year a sum of ₹4 was distributed as income besides ₹3 as capital gain distribution. At the end of the year NAV was ₹55. Calculate the net return of the year. Suppose the aforesaid mutual fund in the next year gives a dividend of ₹5 as income distribution and no capital gains distribution and the NAV at the end of the second year is ₹50. What is the return for the second year? Compiled By Rahul Malkan(RM)

Page 43

CA FINAL - SFM

Question 13 (Adapted) Mr J Purchased an open ended load fund with a NAV of ₹50 per unit and 3% sales load. One year later J sold the fund with a NAV of ₹54 per unit with a back end load of 3% as well. During a year, fund paid a ₹0.25 dividend per unit and distributed ₹0.40 in capital gains per unit. If J invested ₹10,000 in this fund, what was J’s rupee and percentage return over the year. What would have been the return if this was a no load fund? Question 14 (May 2006) A Mutual Fund having 300 units has shown is NAV of Rs.8.75 and Rs. 9.45 at the beginning and at the end of the year respectively. The Mutual Fund has given two options: a) Pay Rs. 0.75 per unit as dividend and Re. 0.60 per unit as a capital gain, or b) These distributions are to be reinvested at an average NAV of Rs. 8.65 per unit. What difference it would make in terms of return available and which option is preferable? Question 15 (Nov 2005 – 12 Marks) Sun Moon Mutual Fund (Approved Mutual Fund) sponsored open-ended equity oriented scheme "Chanakya Opportunity Fund". There were three plans viz. 'A'- Dividend Re-Investment Plan, 'B' Bonus Plan & 'C'- Growth Plan. At the time of Initial Public Offer on 1-4-1995, Mr. Anand, Mr. Bachhan & Mrs. Charu, three investors invested Rs. 1,00,000 each and chose 'B', 'C' & 'A' Plan respectively. The History of the Fund is as follows: Date Dividend (%) Bonus Net Asset Value per Unit Ratio (FV Rs, 10) Plan A

Plan B

Plan C

30.70

31.40

33.42

58.42

31.05

70.05

31-10-2003 40

42.18

25.02

56.1$

15-03-2004 25

44.45

29.10

64.28

28-07-1999 20 31-03-2000 70

5:4

31-03-2004

1:3

42.18

20.05

60.12

24-03-2005 40

1:4

48.10

19.95

72.40

53.75

22.98

82.07

31-07-2005

On 31 st 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 percent only on sale/*redemption of units. d. Ignore Education Cess. Question 16 (Adapted) (i) A mutual had a net Asset Value (NAV) of Rs. 60 at the beginning of the year. During the year a sum of Rs. 5 was distributed as dividend besides Rs. 3 as Capital Gains distribution. At the end of the year NAV was Rs. 70. Calculate total return for the year? (ii) Suppose the aforesaid mutual fund in the next year give a dividend of Rs. 5 and no of Capital gains Distribution and NAV at the end of second year is Rs. 65. What is the return for the second year? Question 17 (Nov 2008) Compiled By Rahul Malkan(RM)

Page 44

CA FINAL - SFM

T Ltd. has promoted an open-ended equity oriented scheme in 1999 with two plans—Dividend Reinvestment Plan (Plan-A) and a Bonus Plan (Plan-B); the face value of the units was Rs. 10 each. X and Y invested Rs. 5,00,000 each on 1.4.2001 respectively in Plan-A and Plan-B, when the NAV was Rs. 42.18 for Plan - A and Rs. 35.02 for Plan - B. X and Y both redeemed their units on 31.3.2008. Particulars of dividend and bonus declared on the units over the period were as follows: Date Dividend Bonus NAV 15.9.2001

15

Ratio —

Plan A 46.45

Plan B 29.10

28.7.2002

—

1:6

42.18

30.05

31.3.2003

20

—

48.10

34.95

31.10.2003

—

1:8

49.60

36.00

15.3.2004

18

—

52.05

37.00

24.3.2005

—

1:11

53.05

38.10

27.3.2006

16

—

54.10

38.40

28.2.2007

12

1:12

55.20

39.10

31.3.2008

—

—

50.10

34.10

You are required to calculate the annual return for X and Y after taking into consideration the following information : (i) Securities transaction tax @ 2% on redemption. (ii) Liability of capital gains to income tax (a) Long-term capital gain-exempt; and (b) Short-term capital gains at 10% plus education cess at 3%. Question 18 (Nov 2010 – 10 Marks) Mr. K. invested ₹2,00,000 each in Plan-D and Plan-B when the NAV was ₹38.20 and 35.60 respectively. Both the plans matured on 31 -3-2010. Particulars of dividend and bonus declared over the period are as follows: Date Dividend Bonus Net Asset Value (*) % 30-09-2005

Ratio

10

30-06-2006

1:5

Plan D

Plan B

39.10

35.60

41.15

36.25

31-03-2007

15

44.20

33.10

15-09-2008/

13

45.05

37.25

42.70

38.30

44.80

39.10

40.25

38.90

40.40

39.70

30-10-2008 27-03-2009

1:8 16

11-04-2009

1:10

31-03-2010

What is the effective yield per annum in respect of the above two plans? Question 19 (Nov 2010 – 8 Marks) An investor purchased 300 units of a Mutual Fund at ₹12.25 per unit on 31 st December, 2009. As on 31st December, 2010 he has received ₹1.25 as dividend and ₹1.00 as capital gains distribution per unit. Required: a. The return on the investment if the NAV as on 31 st December, 2010 is ₹13.00. Compiled By Rahul Malkan(RM)

Page 45

CA FINAL - SFM

b. The return on the investment as on 31st December, 2010 if all dividends and capital gains distributions are reinvested into additional units of the fund at ₹12.50 per unit. Question 20 (Nov 2011 – 5 Marks) Orange purchased 200 units of Oxygen Mutual Fund at ₹45 per unit on 31 st December, 2009. In 2010, he received ₹1.00 as dividend per unit and a capital gains distribution of ₹2 per unit. Required : i. Calculate the return for the period of one year assuming that the NAV as on 31st December, 2010 was ₹48 per unit. ii. Calculate the return for the period one year assuming that the NAV as on 31 st December, 2010 was ₹48 per unit and all dividends and capital gains distributions have been reinvested at an average price of ₹46.00 per unit. Question 21 (May 2012 – 8 Marks) A Mutual Fund Co. has the following assets under it on the close of business as on : Company No. of Shares 1st February 2012 Market 2nd February, 2012 price per share ₹ Market price per share ₹ L Ltd.

20,000

2.00

20.50

M Ltd.

30,000

312.40

360.00

N Ltd.

20,000

361.20

383.10

P Ltd.

60,000

505.10

503.90

Total No. of Units 6,00,000 i)Calculate Net Assets Value (NAV) of the Fund. ii) Following information is given: Assuming one Mr. A, submits a cheque of Rs. 30,00,000 to the Mutual Fund and the Fund manager of this company purchases 8,000 shares of M Ltd; and the balance amount is held in Bank. In such a case, what would be the position of the Fund? iii) Find new NAV of the Fund as on 2nd February 2012. Question 22 (Nov 2006 – 8 Marks) Mr. X on 1.7.2000, during the initial offer of some Mutual Fund invested in 10,000 units having face value of Rs. 10 for each unit. On 31.3.2001 dividend operated by the M.F was 10% and Mr. X found that his annualized was 153.33%. On 31.12.2002, 20% dividend was given, On 31.3.2003 Mr. X redeemed all his balance of 11,296.11 units when his annualized yield was 73.52%. What are the NAVs as on 31.3.2001, 31.12.2002 and 31.3.2003 ?

Compiled By Rahul Malkan(RM)

Page 46

CA FINAL - SFM

Question 23 (Nov 2011 – RTP) 1 April 2009 Fair Return Mutual Fund has the following assets and prices at 4.00st p.m. Shares No. of Shares Market Price Per Share (Rs.) A Ltd.

10000

19.70

B Ltd.

50000

482.60

C Ltd.

10000

264.40

D Ltd.

100000

674.90

E Ltd.

30000

25.90

No. of units of fund

8,00,000

Please calculate : 1. NAV of the Fund. 2. Assuming Mr. X, a HNI, send a cheque of Rs. 50,00,000 to the Fund and Fund Manager purchases 18000 shares of C Ltd. and balance is held in bank. Then what will be position of fund. 3. Now suppose on 2 April 2009 at 4.00 p.m. the market price of shares is as follows : Shares Rs. A Ltd.

20.30

B Ltd.

513.70

C Ltd. D Ltd.

290.80 671.90

ELtd.

44.20

Then what will be new NAV. THANKS….

Compiled By Rahul Malkan(RM)

Page 47