CMA Final · Strategic Financial Management · Mutual Funds
Trishul Mutual Fund has an equity scheme with expense ratio of 2% of average net assets. The scheme's gross portfolio return for the year was 14% on opening NAV of Rs 20.00, and no distributions were made. Assuming expenses are 2% of the opening NAV, what is the closing NAV?
The fund's net return is the gross 14% less the 2% expense ratio, which is 12%. Applying this to the opening NAV of Rs 20 gives a closing NAV of Rs 22.40. Expenses reduce NAV, so the gross figure of Rs 22.80 is wrong.
- ARs 22.40Correct
- BRs 22.80
- CRs 23.20
- DRs 22.00
Explanation
Net return = 14% - 2% = 12%. Closing NAV = 20 x 1.12 = Rs 22.40. Rs 22.80 would result from 14% less 0.0 expense errors in base; Rs 22.00 wrongly treats the net return as 10%.
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