NISM V-D NAV, Total Expense Ratio and Pricing of Units — Practice Questions
Questions on how NAV is computed, what the total expense ratio may include and its limits, entry and exit loads, and how units are priced on purchase and redemption.
40 questions on NAV, TER & Pricing in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- NAV computation
- TER components and limits
- Exit loads
- Pricing of purchases and redemptions
Free sample questions
1. The distributable reserve of Income Distribution cum Capital Withdrawal of a mutual fund scheme is calculated as _________ .
- A. All the profits earned (excluding the Marked to Market profits) Less the accrued expenses Less the Mark to Market losses ✅
- B. All the profits earned (including the Marked to Market profits) Less the accrued expenses Less the Mark to Market losses
- C. Only the dividend received
- D. Only the Capital Gains
Answer: A — All the profits earned (excluding the Marked to Market profits) Less the accrued expenses Less the Mark to Market losses
Why: Distributable Reserve: This represents the portion of a mutual fund's profits that can be distributed to investors. It's crucial to understand that unrealized gains (Marked to Market profits) are not part of the distributable reserve. This is a key principle in mutual fund accounting. Distributions should come from realized gains. Realized Profits: These are the profits actually earned from selling investments. This is what forms the basis of the distributable reserve. Marked to Market (MTM) Profits/Losses: These are unrealized gains or losses based on the current market value of the fund's holdings. While MTM is important for calculating the Net Asset Value (NAV) of the fund, it's not used for calculating the distributable reserve. Including MTM profits would mean distributing money that the fund hasn't actually received yet. Accrued Expenses: These are expenses that the fund has incurred but not yet paid. They are deducted from profits before calculating the distributable reserve. Therefore, the distributable reserve includes realized profits (profits earned from actual sales), less any accrued expenses and less any MTM losses (as these would offset realized gains). MTM gains are specifically excluded.
💡 Distributable reserve = realised profits - accrued expenses - MTM losses (MTM gains excluded).
2. The market value of a mutual fund scheme's portfolio is Rs. 15 crores. Its current liabilities are Rs. 2 crore. The unit capital is Rs. 10 crore and face value per unit is Rs 10. Calculate the NAV per unit?
- A. Rs. 15
- B. Rs. 10
- C. Rs. 11.50
- D. Rs. 13 ✅
Answer: D — Rs. 13
Why: The formula for calculating NAV is: (Total Assets minus Liabilities other than to Unitholders) / No. of outstanding Units Total assets minus liabilities = 15 cr - 2 cr = Rs 13 cr Number of outstanding units = Unit Capital / Face value = 10 cr / 10 = 1 crore outstanding units NAV = 13 cr / 1 cr = Rs. 13
💡 NAV = (assets-liabilities)/units = (15-2)cr/1cr = Rs 13; units = capital/face = 10cr/10.
3. In order to ensure fairness to investors, _____ has prescribed cut-off timing to determine the applicable NAV.
- A. AMFI
- B. SEBI ✅
- C. RBI
- D. Stock Exchange
Answer: B — SEBI
Why: SEBI has prescribed cut-off timing to determine the applicable NAV and these timings are uniformly applicable for all mutual funds.
💡 SEBI prescribes cut-off timings that decide the applicable NAV (uniform across all MFs).
Practise all 40 NAV, TER & Pricing questions
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Other NISM V-D topics
Investment LandscapeConcept & Role of Mutual FundsLegal StructureLegal & RegulatoryScheme Related InformationDistribution & ChannelsTaxationInvestor ServicesRisk, Return & PerformanceScheme PerformanceScheme SelectionBasics of DerivativesUnderstanding the IndexForwards & FuturesOptionsEquity Derivative StrategiesInterest Rates & Fixed IncomeInterest Rate DerivativesInterest Rate FuturesInterest Rate OptionsInterest Rate Strategies