Mutual Fund performance calculations

A mutual fund’s performance is calculated by change in its net asset value (NAV). It would help compare performance of different schemes.
 
Let’s consider a simple example and explore it to cover performance calculations of basic schemes. Example: A mutual fund scheme issued Rs 10 face value units to an investor at a NAV of Rs 20 on 1st Jan 2007 and the NAV at the end of Dec 07 is Rs 25. The performance of the fund for this period is calculated by the below formula.
 
Performance of the fund = (Current NAV – NAV at the time of Investment) * 100 / NAV at the time of Investment
Performance of the fund = (30 – 25)* 100/25 = 20%
 
This is the simplest case. Usually the funds also issue dividends. Let’s say the fund issued a dividend of 30% of face value. So the dividend amount per unit is Rs 3. Say the NAV at the time of dividend distribution is Rs 27. Read more

December 25, 2009 | Filed Under Fundamental Analysis | 1 Comment 

Net Asset Value (NAV) Calculation

 Whenever we buy open ended mutual fund units the number of units we get for our investment is calculated based on Net Asset Value (NAV) of the fund. Similarly when we sell our units the amount to be returned to us is calculated based on NAV.

NAV is actually NAV per unit but every one use the term NAV as a short form. NAV is Net Assets of the fund per Number of Units outstanding. It is calculated by the below formula.
 
(Market Value of the Investments + Receivables + Other Accrued Income + Other Assets – Accrued Expenses – Other Payables – Other Liabilities) / (No. of units outstanding as on the NAV date)
 
Market Value of the Investments is calculated as per the last traded or closing price of the securities/debentures.
Accrued income is dividends and interests received.
Other Assets Include Cash, Cash equivalents etc
 
If NAV value of a scheme is high it doesn’t mean that the unit is over priced. In case of open ended mutual funds the NAV actually reflects the market prices of the funds’ assets neither at premium nor at discount.
 
Please visit the below AMFI  link for latest NAVs of all schemes.
 
Latest NAVs
 
 
December 19, 2009 | Filed Under Fundamental Analysis, Mutual Funds | Leave a Comment 

Gilt Funds

Gilt funds invest in government issued medium and long term bonds. They can also invest in high rated (Aaa/AAA rating*) corporate bonds. Gilts/Government bonds are not rated. Gilts/Treasury bonds are considered extremely credit worthy because they are backed by the Governments. If a scenario arises where it has to default it will repay the principal by printing currency. So they are always considered extremely safe.

 Some Government Sponsored enterprises are also not rated. They are not explicitly backed by the governments but they have implied Government backing and implied Aaa/AAA rating. Read more

October 20, 2009 | Filed Under Fundamental Analysis, Mutual Funds | Leave a Comment 

What is investment risk?

An investment risk is a chance where actual return on the investment is lower than expected. This includes the possibility of losing some part of or all of the original investment

By looking at the definition, it is easily understandable that no one really wants any risk. But still people take risk. Why? The only reason is hope for higher returns.

People are Hoping higher returns and taking a chance!!

We will cover different ‘risk’ concepts and our understanding of that in the upcoming topics.  Diversification is one of the strategy to reduce the risk. Read more

August 13, 2009 | Filed Under Fundamental Analysis | Leave a Comment 

Financial Ratios – Dividend Policy Ratios

These ratios give an insight into the dividend policy of a company.

Dividend Yield   =  Dividend per share / market value of the share

This ratio doesn’t show the future growth.

Payout ratio = Dividend per Share / Earnings per share

Price Earnings ratio (P/E ratio):

This ratio comes under valuation ratios as this is useful in assessing the value of a share.

Price earnings ratio = Market value of a share / Earnings per share Read more

May 31, 2009 | Filed Under Fundamental Analysis | Leave a Comment 

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