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

Ms. Neha invests Rs 10,000 monthly through an SIP for three months. The NAVs on the three instalment dates are Rs 20, Rs 25 and Rs 40 per unit. Ignoring charges, what is her average cost per unit, to the nearest paisa, and how does it compare with the simple average of the NAVs?

Her average cost is Rs 26.09 per unit, below the simple NAV average of Rs 28.33. She buys 500, 400 and 250 units, totalling 1,150 units for Rs 30,000. A fixed amount buys more units when NAV is low, which pulls the average cost down.

  1. ARs 26.09, below the simple average of Rs 28.33Correct
  2. BRs 28.33, equal to the simple average
  3. CRs 26.09, above the simple average of Rs 25.00
  4. DRs 30.00, above the simple average of Rs 28.33

Explanation

Units: 10,000/20 = 500; 10,000/25 = 400; 10,000/40 = 250; total 1,150 units. Cost Rs 30,000, so average cost = 30,000/1,150 = Rs 26.09. The simple average of NAVs is (20+25+40)/3 = 28.33. Fixed-sum investing buys more units at low NAVs, so the cost is the harmonic mean, below the simple average.

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