Page 251 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Entry Load and Exit Load
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one
buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund
for marketing and distribution expenses.
Calculation of Front-end Load of Entry Load

Net Asset Value
Public Offer Price =
1– Front-end Load
Calculation of Back-end Load or Exit Load

Net Asset Value
Redemption Price =
1– Back-end Load
Return on Investment
The investor who invests in mutual fund units can receive returns in the following two ways:
Capital Appreciation - Profit earned on sale of units at a higher NAV than the original
cost.
Income Distribution (dividend) - When a fund makes a profit on its investment, this profit will
be given to investor as a dividend which can be re-invested
in the fund or retain it in the form of cash.
Return on Mutual FundReturn on Mutual Fund

(NAV − NAV ) 1 + G t
+
t
t
t 1
r= −
NAV
t1
−
Where r = Return on mutual fund
NAV = Net asset value at the time period ‘t’
t
NAV = Net asset value at time period “t–1”
t – 1
I = Income at time period ‘t’
t
G = Capital gain distribution at time period ‘t’
t
Required Return on Mutual Fund Investment (as a percentage)
⎡ ⎤
R = ⎢ 1 × R 1⎥ + Rcurring expenses(%)
−
2 ⎣ 1 Initialexpenss(%) ⎦
Where, R = Personal Return of investor
1
R = Mutual Fund earnings
2
Effective Yield on Mutual Fund Investment

Dividend + Capital Appreciation 365
= × × 100
Initival Investment No. of days
Illustration: A mutual fund that had a net asset value of ` 10 at the beginning of month 1 made
income and capital gain distribution of ` 0.05 and ` 0.04 per share respectively during the month,
and then ended the month with a net asset value of ` 10.03. Calculate monthly return.

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