CA Final · Advanced Financial Management · Mutual Funds
Mr. Deshmukh invests Rs 1,02,000 in a scheme whose NAV is Rs 20.00 per unit and which charges a 2% entry load on NAV. He is allotted units out of his investment amount. One year later NAV is Rs 24.00 and there is no exit load. What is the value of his redemption proceeds and his absolute return on the Rs 1,02,000 invested?
He gets Rs 1,20,000 and earns about 17.65%. The entry load makes the purchase price Rs 20.40, so Rs 1,02,000 buys 5,000 units. At Rs 24 NAV these are worth Rs 1,20,000, a gain of Rs 18,000 on the amount invested.
- ARs 1,20,000; about 17.65%Correct
- BRs 1,22,400; 20.00%
- CRs 1,20,000; 20.00%
- DRs 1,22,400; about 17.65%
Explanation
Sale price = 20 x 1.02 = Rs 20.40. Units = 1,02,000 / 20.40 = 5,000. Redemption = 5,000 x 24 = Rs 1,20,000. Gain = 18,000 / 1,02,000 = 17.65%. Option with 20% ignores the load and 1,22,400 wrongly uses 5,100 units (investment divided by NAV).
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