NAV Calculation of a Mutual Fund (CA Final AFM)

Understand NAV Calculation

Key rules to remember

Net assets

Net assets = Market value of investments + Other assets − Liabilities − Accrued expenses

Use market value on the valuation date. Other assets include cash, bank balance and receivables.

NAV per unit

NAV per unit = Net assets ÷ Number of units outstanding

Units outstanding means units in issue on the valuation date, after any new issue or redemption.

Market value of an equity holding

Market value = Number of shares × Market price per share

Do this for each security, then add up.

Closing net assets (end of period)

Closing net assets = Opening net assets + Income and gains − Expenses − Distribution paid

Use when the question asks NAV at the end of a period. Gains include unrealised appreciation in market value. Expenses include accrued unpaid amounts as well as those paid in cash.

Total units from investment amount

Units = Amount invested ÷ NAV per unit (or the applicable price)

Useful when units are issued at a given NAV. Load, if any, changes the price applied.

How to solve NAV Calculation questions

1. 1Read the valuation date and note what is asked: NAV per unit, total net assets, or NAV after some event such as a dividend or expense payment.
2. 2List each security with quantity and market price on the valuation date. Ignore cost unless the question asks for gain or return.
3. 3Compute market value of each security and total them.
4. 4Add other assets: cash, bank, dividends and interest receivable, amounts due from brokers.
5. 5Deduct liabilities: amounts payable for purchases, accrued fund expenses and other dues. Check whether an expense is already paid, since it is then already out of cash.
6. 6Compute net assets and divide by units outstanding. Adjust units if there are new issues or redemptions.
7. 7If asked, apply the later event (distribution, new expense, price change) and recompute. State the final NAV to two decimal places and add one line of interpretation.

Quickest way: Three-line NAV shortcut

Common mistakes in NAV Calculation

• Using cost price of investments instead of market value

  Cost is often given first and looks like the main figure.

  Fix: Always value the portfolio at market price on the valuation date. Use cost only for gain or return calculations.

• Forgetting to deduct accrued or unpaid expenses

  Students treat expenses as a profit and loss item only.

  Fix: Treat every expense payable on the valuation date as a liability and deduct it before dividing by units.

• Deducting an expense twice

  An expense already paid from cash is also listed as a liability.

  Fix: If it is paid, the cash balance is already reduced. Deduct only the unpaid part.

• Ignoring receivables such as dividend or interest accrued

  They are written in the narrative and not in the main table.

  Fix: Scan the whole question for amounts due and add them to other assets.

• Using the wrong number of units

  Units issued or redeemed during the period are missed, or face value is confused with units.

  Fix: Compute units outstanding on the valuation date. Units = capital raised ÷ issue price when only capital is given.

• Rounding too early

  Students round each market value or the NAV midway.

  Fix: Carry full figures through the working and round NAV only at the end.

Worked examples