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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors

Net Asset Value, Total Expense Ratio and Pricing of Units

NAV is the per-unit value of a mutual fund scheme: (market value of assets + receivables + accrued income − liabilities − accrued expenses) ÷ units outstanding. TER is the yearly cost charged to the scheme. Units are bought or sold at the applicable NAV, decided by cut-off time, plus or minus any load.

What this chapter covers

This chapter explains how a mutual fund scheme puts a price on one unit and what you pay to buy, hold and sell it. You start with NAV, move to how the fund values its assets, then to the expenses that reduce NAV, and finally to the price an investor actually gets: loads, cut-off times, stamp duty and swing pricing.

The chapter is mostly rules and small calculations. Expect questions such as computing NAV from a balance sheet, finding the redemption price after exit load, or deciding which day's NAV applies to an application received at a given time.

It connects to the rest of the paper in three ways. Fund structure and scheme types explain why NAV is published daily for open-ended schemes. Regulations and investor-protection chapters explain why loads and expenses are capped and disclosed. Returns, SIP and taxation chapters use NAV as the base for every return figure you calculate.

NAV and pricing questions are among the most predictable in NISM-Series-V-A. They are a mix of fixed rules you can memorise and short calculations you can practise, so careful study turns directly into marks. There is no negative marking in this exam, so attempt every question, but a calculation slip or a wrong cut-off time still costs you the mark. As a distributor, you also explain these costs and dates to clients every day, so the same knowledge protects you in real work.

Net Asset Value, Total Expense Ratio and Pricing of Units: topics in the order to study them

  1. 1Net Asset Value (NAV) Concept and CalculationEverything else in the chapter builds on the NAV formula, so learn it and practise the arithmetic first.
  2. 2Valuation of Investments and Accounting for Fund AssetsOnce you know the formula, you need to know how each asset in it gets its value and when it is recorded.
  3. 3Total Expense Ratio and Fund ExpensesExpenses are accrued daily and deducted before NAV is declared, so they connect directly to the NAV you just learned.
  4. 4Pricing of Units: Entry and Exit LoadNow you move from the scheme's NAV to the price the investor pays or receives, starting with loads.
  5. 5Cut-off Time, Applicable NAV and Stamp DutyThis decides which day's NAV applies and what is deducted on purchase, so it needs the load rules fresh in mind.
  6. 6Swing Pricing and Other Pricing ConsiderationsThis is the least frequent topic and an extension of pricing, so study it last when the basics are firm.

How to prepare Net Asset Value, Total Expense Ratio and Pricing of Units

Treat this chapter as one formula, a short list of rules and a few repeatable calculations. Study in the order below and practise on paper, not just by reading.

  1. Write the NAV formula from memory and compute NAV for five made-up balance sheets. Always divide net assets by units outstanding.
  2. Make a two-column list of asset types and how each is valued: listed securities at the closing price on the exchange, and debt securities using prices from valuation agencies appointed by AMFI.
  3. List the fund expense heads and remember three ideas: expenses are accrued daily, they are charged to the scheme, and TER limits are slab-based, falling as scheme assets grow. Learn that Direct Plans have a lower TER because they carry no distribution cost.
  4. Calculate redemption price as NAV − exit load, and purchase amounts after stamp duty. Remember that entry load is not allowed and that exit load is credited to the scheme, net of GST.
  5. Build a cut-off timetable. Note separately the 3:00 pm rule for most schemes, the different timing for liquid and overnight schemes, and the fund-availability condition for purchases. Check the exact times in your NISM workbook.
  6. Read the swing pricing and other pricing points once for the concept: why NAV is adjusted during heavy redemptions and who bears the cost.
  7. Finish with timed MCQs. For every wrong answer, note whether the cause was a formula slip, a rule you forgot or a misread condition.

Common mistakes in Net Asset Value, Total Expense Ratio and Pricing of Units

  • Dividing total assets by units without subtracting liabilities and accrued expenses.

    Fix: Always compute net assets first: assets plus receivables and accrued income, less liabilities and accrued expenses. Then divide by units outstanding.

  • Believing an entry load can be charged to the investor.

    Fix: Remember that entry load has been disallowed for mutual fund schemes. Distributors are paid by commission from the fund, or by the investor under a separately agreed fee, not through an entry load.

  • Applying the wrong day's NAV by using only the time of the application.

    Fix: Check three things: scheme type, time of receipt and when funds are realised. Then pick the day.

  • Subtracting exit load from the wrong figure or at the wrong point.

    Fix: Convert the load to rupees on NAV first, then subtract. A 1% load on ₹25 is ₹0.25, giving ₹24.75.

  • Treating TER as an extra charge paid separately by the investor.

    Fix: TER is charged to the scheme and is already reflected in the NAV. The investor sees lower returns, not a separate bill.

  • Forgetting that stamp duty reduces the units allotted on purchase.

    Fix: Deduct 0.005% from the amount invested first, then divide the balance by the applicable NAV to find the units.

Last-day revision: Net Asset Value, Total Expense Ratio and Pricing of Units

  • NAV per unit = (market value of assets + receivables + accrued income − liabilities − accrued expenses) ÷ units outstanding.
  • Example: net assets of ₹100 crore and 5 crore units give a NAV of ₹20.0000.
  • NAV is declared net of expenses, since expenses are accrued daily and deducted before NAV is worked out.
  • Listed securities are valued at the closing price on the exchange; debt securities use prices from AMFI-appointed valuation agencies.
  • TER is the annual cost of running the scheme as a percentage of assets; its limits are slab-based and fall as assets grow.
  • Direct Plans have a lower TER than Regular Plans because there is no distribution commission.
  • Entry load is not permitted for mutual fund schemes; exit load is allowed and is credited to the scheme, net of GST.
  • Redemption price = NAV − exit load. Example: NAV ₹25 and 1% exit load give ₹24.75.
  • Stamp duty on purchases of units is 0.005%; on ₹1,00,000 it is ₹5, so units are allotted against ₹99,995.
  • Cut-off for most schemes is 3:00 pm; the applicable NAV also depends on when funds are available for utilisation.
  • Liquid and overnight schemes follow different cut-off rules from other schemes, so never apply the 3:00 pm rule to them blindly.
  • Swing pricing adjusts NAV in stressed conditions so that the cost of heavy redemptions falls on exiting investors, not those who stay.

Net Asset Value, Total Expense Ratio and Pricing of Units practice questions

Net Asset Value, Total Expense Ratio and Pricing of Units in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Net Asset Value, Total Expense Ratio and Pricing of Units: frequently asked questions

How do I calculate NAV for the NISM Mutual Fund Distributors exam?

Add the market value of investments, receivables and accrued income. Subtract liabilities and accrued expenses to get net assets. Divide net assets by the number of units outstanding.

Is there a difference between exit load and TER?

Yes. TER is the annual running cost charged to the scheme and already reflected in NAV. Exit load is charged only when an investor redeems within a stated period and reduces the redemption price.

Can a mutual fund charge an entry load?

No. Entry load is not allowed for mutual fund schemes. Exit load is allowed and is credited to the scheme, net of GST.

Which NAV applies if I submit a purchase application after the cut-off time?

The application is treated as received on the next business day, so that day's NAV applies. For most schemes the cut-off is 3:00 pm, but liquid and overnight schemes and fund-availability conditions differ, so check the workbook rules.

Is there negative marking on these questions in NISM V-A?

No. NISM-Series-V-A has 100 questions for 100 marks, a 50% pass mark and no negative marking. You should attempt every question, but still practise the calculations to avoid losing marks.