NAV and the amount an investor actually receives

The case and its answers

Every question of this case, with its answer and why each other option is wrong.

A mutual fund scheme has assets worth ₹210 lakh, liabilities of ₹10 lakh and 10 lakh units outstanding. Kavya invests ₹20,000 when the NAV is calculated from these figures. No entry charge or other deduction applies to her purchase. Later the NAV is ₹25 and she redeems 900 units. The scheme terms supplied for this fictional exercise charge an exit load of 1% of the gross redemption value on these units. There are no taxes or other charges. Units not redeemed remain invested. The distributor must explain both the gross investment value and the cash actually paid to Kavya.

The exit load is a hypothetical stated scheme term.

The purchase NAV is applicable and the stated transactions are valid.

1. Q1What is the NAV when Kavya purchases units?

   • A

     Option A. ₹22

     Why it is wrong: This adds liabilities to assets rather than subtracting them.

   • B

     Option B. ₹21

     Why it is wrong: This ignores the scheme liabilities.

   • C

     Option C. ₹20 — Correct answer

   • D

     Option D. ₹200

     Why it is wrong: This is the net asset amount in lakh, not value per unit.

   Answer: C. NAV = (₹210 lakh − ₹10 lakh) ÷ 10 lakh units = ₹20 per unit. Remember: NAV measures net assets attributable to each unit.

   Hint, shown before you answer in practice mode: Subtract liabilities before dividing by units.

   VA-P-C01-Q1easynumerical

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2. Q2How many units does her ₹20,000 purchase create?

   • A

     Option A. 900 units

     Why it is wrong: This is the later redemption quantity, not the purchase quantity.

   • B

     Option B. 1,000 units — Correct answer

   • C

     Option C. 10,000 units

     Why it is wrong: This divides by ₹2 rather than ₹20.

   • D

     Option D. 800 units

     Why it is wrong: This incorrectly uses the later NAV of ₹25.

   Answer: B. Units allotted = ₹20,000 ÷ ₹20 = 1,000. No purchase deduction is specified. Remember: Keep transaction NAVs tied to their own dates.

   Hint, shown before you answer in practice mode: Divide the purchase amount by the purchase NAV.

   VA-P-C01-Q2mediumnumerical

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3. Q3What is the gross value of the 900-unit redemption?

   • A

     Option A. ₹22,275

     Why it is wrong: This is the value after the exit load, not the gross amount.

   • B

     Option B. ₹22,500 — Correct answer

   • C

     Option C. ₹25,000

     Why it is wrong: This values all 1,000 units rather than the 900 redeemed.

   • D

     Option D. ₹18,000

     Why it is wrong: This uses the old NAV of ₹20.

   Answer: B. Gross redemption = 900 × ₹25 = ₹22,500 before applying the stated exit load. Remember: Gross value and net cash received are different amounts.

   Hint, shown before you answer in practice mode: Use the redemption NAV of ₹25.

   VA-P-C01-Q3mediumnumerical

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4. Q4How much cash is paid to Kavya after the specified exit load?

   • A

     Option A. ₹22,250

     Why it is wrong: This subtracts ₹250, which is the load on 1,000 units.

   • B

     Option B. ₹22,275 — Correct answer

   • C

     Option C. ₹22,500

     Why it is wrong: This omits the load.

   • D

     Option D. ₹20,000

     Why it is wrong: This returns the initial investment amount instead of valuing the redeemed units.

   Answer: B. The load is ₹225. Net proceeds = ₹22,500 × 0.99 = ₹22,275. The remaining 100 units are still invested. Remember: Apply the charge to the base stated in the scheme terms.

   Hint, shown before you answer in practice mode: Subtract 1% of ₹22,500.

   VA-P-C01-Q4mediumnumerical

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