NISM-Series-V-A: Mutual Fund Distributors · Net Asset Value, Total Expense Ratio and Pricing of Units

Valuation of Investments and Accounting for Fund Assets

Updated 11 October 2026 · Fact-checked

Valuation of investments means marking a scheme's holdings to fair value every day so NAV is accurate. Traded equity uses the exchange closing price. Debt and money market securities use prices from AMFI-appointed valuation agencies, with short-maturity ones amortised. Income and expenses are accrued daily. NAV = (assets − liabilities) ÷ units outstanding.

Understand Valuation of Investments and Accounting for Fund Assets

A mutual fund NAV is only as good as the values behind it. Investors buy and sell units at NAV, so every holding must be valued fairly each day. If values are too high, new investors overpay and exiting investors gain at others' cost. If too low, the reverse happens.

SEBI's Mutual Fund Regulations set valuation norms that every AMC must follow. The core idea is fair valuation: value each security at the price you could reasonably get for it, not at what the fund paid. The AMC's valuation policy must be approved by the trustees and applied consistently. Valuation is mark-to-market, so unrealised gains and losses flow into NAV.

Equity shares that are actively traded are valued at the last quoted closing price on the stock exchange the AMC has chosen as its primary exchange (NSE or BSE). A share that has not traded on any exchange in the 30 days before the valuation date is treated as non-traded. It is then valued at fair value under the AMC's approved policy, not at the stale last price.

Debt and money market securities rarely trade daily, so no closing price exists. AMFI has appointed valuation agencies that publish security-wise prices, and AMCs use these prices. For securities with a residual maturity of up to 30 days, the value is amortised on a straight-line basis. The security moves steadily from its current value to its redemption value over the remaining days.

NAV also needs accrual accounting. Interest on debt is recognised daily as it accrues, even if not yet received. Expenses such as the management fee are accrued daily, even if not yet paid. Dividend on equity is recognised on the ex-dividend date, not when cash arrives. Investment purchases and sales are recorded on the trade date. Accrued income is an asset and accrued expenses are a liability in the NAV formula.

Key formulas to remember

NAV per unit: NAV = (Market value of investments + Receivables + Accrued income + Other assets − Accrued expenses − Payables − Other liabilities) ÷ Units outstanding; Net assets divided by units. Accrued income adds to NAV. Accrued expenses reduce it.
Traded equity valuation: Value = Last quoted closing price on the AMC's selected primary exchange × Number of shares; Cost price is never used for a traded security.
Non-traded equity: No trade on any exchange in the 30 days before the valuation date → value at fair value per the AMC's approved policy; A trade in the last 30 days means the security counts as traded.
Debt and money market securities: Residual maturity above 30 days → price from AMFI-appointed valuation agencies; AMCs do not choose their own prices for these.
Amortisation (residual maturity up to 30 days): Daily accretion = (Redemption value − Current value) ÷ Days remaining; Straight-line. Value rises by an equal amount each day until maturity.
Dividend recognition: Equity dividend is recorded as income on the ex-dividend date; Not the record date and not the payment date.

How to solve Valuation of Investments and Accounting for Fund Assets questions

Use this method for any question on valuation or on how a fund asset, income or expense enters NAV.

1Identify the asset type: traded equity, non-traded equity, debt, money market security, or an accrual item.
2For equity, check if it traded in the last 30 days. If yes, use the closing price on the primary exchange. If no, use fair value under the approved policy.
3For debt or money market securities, check the residual maturity. Above 30 days means valuation agency price. Up to 30 days means straight-line amortisation.
4For income and expenses, apply accrual: record interest and expenses daily, and dividend on the ex-dividend date.
5In a NAV sum, list all assets at current value, add accrued income and receivables, then subtract accrued expenses and payables.
6Divide net assets by units outstanding. Keep units and rupees in consistent terms.
7Check the answer against the options. Watch for traps that use cost, ignore accruals, or add liabilities.

Quickest way: Three-question valuation check

When to use it: Use it for theory MCQs asking who values a security, at what price, or when income is recognised.

Ask: is it equity or debt? Equity means the market closing price. Debt means agency price.
Ask: is it very short term, up to 30 days? If yes, think amortisation. For equity, a 30-day gap in trading means non-traded and fair value.
Ask: is it income or expense? Both are accrued daily, and dividend is booked on the ex-date. Eliminate options that say 'when received' or 'when paid'.

Common mistakes in Valuation of Investments and Accounting for Fund Assets

Valuing a traded equity holding at purchase cost.
Students carry over the accounting idea of historical cost.
Fix: Mutual funds mark to market. Traded equity is valued at the closing price on the primary exchange.
Thinking the AMC can pick any price for debt securities.
Students assume valuation is purely an internal AMC decision.
Fix: Debt and money market securities above the short-maturity threshold use prices from AMFI-appointed valuation agencies.
Recording equity dividend on the payment date.
It feels natural to count income only when cash arrives.
Fix: Dividend is recognised as income on the ex-dividend date. Remember: accrual, not cash.
Ignoring accrued expenses or accrued interest in a NAV sum.
Students include only market value of securities and cash.
Fix: Add accrued income and receivables. Subtract accrued expenses and payables. Then divide by units.
Confusing the 30-day non-traded test with the 30-day amortisation limit.
Both rules use 30 days, so the two get mixed up.
Fix: The non-traded test applies to equity and asks if it traded in the last 30 days. The amortisation limit applies to debt and money market securities and refers to residual maturity.
Assuming unrealised gains are left out of NAV until sold.
Students confuse NAV with taxable or distributable gains.
Fix: NAV includes unrealised appreciation and depreciation because holdings are marked to market daily.

Worked examples

Example 1

A scheme has equity holdings valued at ₹90,00,000 at closing prices, debt securities valued at ₹40,00,000 at agency prices, accrued interest of ₹1,00,000, receivables of ₹2,00,000 and cash of ₹3,00,000. Accrued expenses are ₹60,000 and payables are ₹1,40,000. Units outstanding are 10,00,000. What is the NAV per unit?
A) ₹13.20
B) ₹13.40
C) ₹13.60
D) ₹14.10

Show the solution

Total assets = 90,00,000 + 40,00,000 + 1,00,000 + 2,00,000 + 3,00,000 = ₹1,36,00,000.
Total liabilities = 60,000 + 1,40,000 = ₹2,00,000.
Net assets = 1,36,00,000 − 2,00,000 = ₹1,34,00,000.
NAV = 1,34,00,000 ÷ 10,00,000 = ₹13.40.
Option C ignores the liabilities. Option A subtracts them twice.

Answer: B) ₹13.40

Example 2

A money market instrument has a residual maturity of 12 days. Its current value is ₹99.40 per ₹100 of face value and its redemption value is ₹100. Using straight-line amortisation, what is its value after 3 more days?
A) ₹99.45
B) ₹99.50
C) ₹99.55
D) ₹99.65

Show the solution

Residual maturity is 12 days, which is within 30 days, so amortisation applies.
Total accretion needed = 100 − 99.40 = ₹0.60.
Daily accretion = 0.60 ÷ 12 = ₹0.05.
After 3 days: 99.40 + (3 × 0.05) = 99.40 + 0.15 = ₹99.55.
Option A is the value after only 1 day.

Answer: C) ₹99.55

Exam tips

Expect direct-recall MCQs on who prices what: exchange closing price for traded equity, AMFI-appointed agencies for debt and money market securities. Learn this pair cold.
Questions often pair a rule with its trap, such as cost price, payment date or record date. Eliminate these first.
In NAV sums, write assets and liabilities in two lines before calculating. Most lost marks come from missing accruals.
V-A has no negative marking, so attempt every question. Still, choose by rule and not by guess.

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

Valuation of Investments and Accounting for Fund Assets in other exams

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

Valuation of Investments and Accounting for Fund Assets: frequently asked questions

How are debt securities valued in mutual fund NAV?

Debt and money market securities are valued using prices published by valuation agencies appointed by AMFI. For securities with residual maturity up to 30 days, the value is amortised on a straight-line basis towards the redemption value.

How is equity valued in a mutual fund scheme?

Traded equity is valued at the last quoted closing price on the primary stock exchange chosen by the AMC. If a share has not traded for 30 days, it is treated as non-traded and valued at fair value under the AMC's approved policy.

What does accrual accounting mean for NAV?

Income and expenses are recognised as they are earned or incurred, not when cash moves. Interest and fund expenses are accrued daily. Equity dividend is recorded on the ex-dividend date.

Why does SEBI insist on fair valuation?

Units are bought and sold at NAV, so a wrong NAV transfers value between entering, exiting and continuing investors. Fair valuation keeps NAV a true reflection of what the holdings are worth.