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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds

Meera, 35, plans to invest Rs 10,000 each month in a fund for 2 years, and the fund NAV on the monthly SIP dates is Rs 20, Rs 25, Rs 20 and Rs 25 repeating cyclically over the 24 months (each value used for 6 instalments in the sequence: 20, 25, 20, 25 for months in blocks of 6). Specifically, NAV is Rs 20 for months 1-6, Rs 25 for months 7-12, Rs 20 for months 13-18, Rs 25 for months 19-24. What is her average cost per unit?

Her average cost per unit is Rs 22.22. She invests Rs 2,40,000 in total and buys 6,000 units at Rs 20 and 4,800 units at Rs 25, so 10,800 units in all. The cost is the harmonic mean, below the Rs 22.50 simple average of NAVs.

  1. ARs 22.50
  2. BRs 22.22Correct
  3. CRs 21.80
  4. DRs 23.00

Explanation

Equal amounts are invested at each NAV. Units at Rs 20: 12 instalments x 500 = 6,000 units. Units at Rs 25: 12 x 400 = 4,800 units. Total units 10,800 and total invested Rs 2,40,000. Average cost = 2,40,000/10,800 = Rs 22.22. The Rs 22.50 option is the simple average of NAVs, which ignores that more units are bought at lower NAV.

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