Question

A mutual fund currently manages $500 Million in assets and has issued 10 million shares. You invest $100,000 into the fund.

(a) What is the NAV, and how many shares will you receive?

(b) Suppose that over the next three years, the fund’s investments without considering fees return 10%, -10%, and 20%. In addition, the fund takes 1% at the start of each year for its management fee. What will have been your annualized return as an investor, and what will be the new NAV at the end of the period?

Answer 1

Answer(a): NAV- Net asset value on which a mutual fund trades on the market. It keeps on changing daily on the basis of stock market. When stock market comes down, NAV also comes down and when market goes up, NAV also goes up.

NAV = Assets / Number of shares

NAV = 500 M / 10 M

NAV = $50

You will receive (units) = Invested amount / NAV

= 100000 / 50

You will receive 2000 units or shares.

Answer(b): My net return will be = Return given by mutual fund - Management fee