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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Financial Management

Case: Kaveri Textiles Ltd, a Pune firm, invested Rs 50,00,000 in units of an open-ended equity mutual fund when the NAV was Rs 25.00 per unit. The fund charged no entry load. After one year the NAV is Rs 28.00 and the fund declared a dividend of Rs 1.50 per unit during the year. What is the holding period return on the investment?

The holding period return is 18 percent. Capital gain per unit is Rs 3 and dividend is Rs 1.50, together Rs 4.50 on an opening NAV of Rs 25. Leaving out the dividend would understate the return at 12 percent.

  1. A12.0%
  2. B18.0%Correct
  3. C6.0%
  4. D15.0%

Explanation

Units = 50,00,000/25 = 2,00,000. Return per unit = (28 - 25 + 1.50)/25 = 4.50/25 = 18%. Check: gain Rs 9,00,000 on Rs 50,00,000 = 18%. Ignoring the dividend gives 12%, which is wrong because dividend is part of total return.

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