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CMA Final · Strategic Financial Management · Portfolio Performance Evaluation and Portfolio Revision

A mutual fund's net asset value was Rs 50 at the start of the year. During the year it paid a dividend of Rs 2 and a capital gains distribution of Rs 3 per unit. The year-end NAV was Rs 54. What is the fund's total return for the year, assuming no reinvestment?

The total return is 18%. Add the NAV appreciation of Rs 4 to the Rs 2 dividend and Rs 3 capital gains distribution, giving Rs 9, and divide by the opening NAV of Rs 50. Ignoring distributions would understate the return at only 8%.

  1. A18%Correct
  2. B8%
  3. C10%
  4. D14%

Explanation

Total return = (change in NAV + distributions) / opening NAV = (54 - 50 + 2 + 3) / 50 = 9/50 = 18%. The option 8% counts only the NAV change (4/50)... plus nothing else, giving 8%. The option 14% omits the capital gains distribution (6/50 + ... = 12%) or mixes components incorrectly.

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