Mutual funds

Dr. Shalini H S
 CONTENTS
• Mutual funds-Net Asset Value
• Mutual Fund Returns
• Selection Criteria:
• Sharpe’s Measure
• Treynor’s Measure
• Jensen’s Measure
-8 Hrs
 introduction

• The pool of the money

• Shares a common financial
goal
• Investors invest money and
get the units as per the unit
value which we called as Net
Asset Value (NAV)
 Net Asset value NAV
• The total market value of all the assets held
in the mutual fund portfolio less the
liabilities, divided by all the outstanding
units.
• Amounts to “book value”.
• The NAV measures how much each share of
a mutual fund is worth.
• So essentially, the NAV of a mutual fund is
the cost of one share of the fund.
 How is NAV calculated ?
• Net Asset Value (NAV) = (Assets – Debts) /
(Number of Outstanding units)
• where
• Assets = Market value of the fund’s
investments + Receivables + Accrued
Income
• Debts = Liabilities + Accrued Expenses
 Example for NAV
• XYZ Mutual Fund owns assets totaling ₹10M
and liabilities equal to ₹500,000 with
500,000 shares outstanding
• Therefore, NAV is:
=₹10,000,000 - ₹500,000 / 500,000
• ₹19/share
 Expense Ratio
• The expense ratio is the total amount of
annual expenses incurred by a mutual fund
• It includes the management fee and
operating expenses like the registrar and
transfer agent fee, marketing and
distribution fee, audit fee and custodian fee.
 Formula
• Expense ratio = (Particular expense / Net
sales) × 100
 Example
• Administrative expenses are 2,500Rs., selling
expenses are 3,200Rs. and sales are 25,00,000Rs.
• Calculation of expense ratio:
• Administrative expenses ratio = (2,500 /
25,00,000) × 100
= 0.1%
• Selling expense ratio= (3,200 / 25,00,000) × 100
= 0.128%
NAV Illustration
 load
• Mutual fund
companies collect an
amount from investors
when they join or
leave a scheme.
• This fee is generally
referred to as a 'load'.
 Entry Load
• The amount or fee
charged from an
investor while
entering a scheme or
joining the company
as an investor.
 Exit Load
• Exit load is a fee or an
amount charged from an
investor for exiting or
leaving a scheme or the
company as an investor.
 Mutual fund returns
1. Annualized returns or CAGR
2. Absolute returns
3. Trailing returns
4. Point to point returns
5. Total returns
6. Rolling returns
• Note: Please refer the word document for
further information