Lesson 1 (Mutual Funds)

MUTUAL FUNDS
A mutual fund is a type of investment vehicle consisting of a

portfolio of stocks, bonds, orother
securities. Mutual funds give small or individual investors
access to diversified, professionally managed portfolios at a
low price.
Mutual Fund is a fund managed by investment company.
Depending on the type of fund, the investment company buys

stocks, bonds and other investment on behalf of the fund.The
money in the fund may come from individuals and institutions.
When you investment money in the fund, you receive shares. As
an investor you are the owner of the fund. The investment
company acts as your advisor, buying or selling stocks or bonds it
feels are good investments. Some mutual funds do not have fixed
number of shares but issues new shares as it takes in money and
redeems them as investors withdraw. Some fund, however, after
reaching a certain size, will stop accepting new investors and will
not issue any new shares.
Mutual Fund Companies in the Philippines
There are different types of mutual funds, some having

high growth potential but high risk and others having lower
growth potential but less risk.
Load Mutual Fund – charges you a fee when you buy and sell
(redeem) shares .
A load mutual fund charges you a sales charge or
commission for the shares purchased. This charge could be
a percentage of the amount you are investing in, or it can be
a flat fee, depending on the mutual fund provider.
For example, if you invested $1,000 into a 5% load mutual

fund, you would actually be investing only $950, with the
remaining $50 going to the company as a commission. The
fee goes to compensate a sales intermediary, such as a
broker, financial planner, or investment advisor, for his time
and expertise in selecting an appropriate fund for the
investor.
A no-load fund is a mutual fund in which shares are sold

without a commission or sales charge.
Net Asset Value Formula:

NAV = Total Assets - Total Liabilities
Total Outstanding Shares
Total Assets would include all the assets of the firm such as
securities and other investments, cash and cash equivalents, accrued
income, and receivables. Note that these assets haveto be expressed
at their market value and not cost price.Since a mutual fund would
have invested in multiple stocks, the value of such securities is based
on and is the sum total of the closing prices of individual securities at
the end of the trading day.
Since a mutual fund would have invested in multiple stocks,
the value of such securities is based on and is the sum total
of the closing prices of individual securities at the end of the
trading day.
 Cash and cash equivalents refer to the amount of cash

or other liquid assets held by the fund as on that day
 Receivables will include dividends or interest income
that is due to be received that day
 Accrued income would include any income that has
been earned by the fund but not yet received
Total liabilities include all short term and long term liabilities
and accrued expenses.
Accrued expenses could include salaries, utility payments, other

operating expenses, management, marketing, sales and
distribution expenses, transfer agent fees, custodian and audit
fees, and various other operational expenses.
The number of outstanding shares may vary each day depending

upon the frequency with which investors invest in or redeem the
mutual fund units.
Net Asset Value Example
You have been provided with the following assets and liabilities details of
Mutual Fund X as on February 10, 2020. Calculate its net asset value as on
that date.
Particulars Amount
Investments in various securities 200,000
Cash and cash equivalents 5,000
Total Receivables 20,000
Short term liabilities 7,000
Long term liabilities 17,000
Accrued expenses 1,000
Number of outstanding shares 1,000
In order to calculate the net asset value, we have to calculate the sum total
of all the assets, which would be equal to the sum total of investments,
cash, and receivables:
Total Assets=200000+5000+20000=225000
Next, we calculate the sumtotal of all the liabilities, including short term
liabilities, long term liabilities, and accrued expenses:
TotalLiabilities=7000+17000+1000=25,000
Once we have total assets and liabilities we can calculate the net asset
value:
NetAssetValue = Total Assets - Total Liabilities

Total Outstanding Shares
This means that the mutual fund’s value per share is $200.
**************************************************************************************
2) Let's assume at the close of trading yesterday that a

particular mutual fund held $10,500,000 worth of securities,
$2,000,000 of cash, and $500,000 of liabilities. If the fund had
1,000,000 shares outstanding, then yesterday's NAV would
be:
NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00
A fund's NAV will change daily as the value of a fund's securities,

cash held, liabilities, and the number of shares outstanding fluctuate.
****************************************************************************************************
3) Example of Net Asset Value

Let's look at an example. Say your mutual fund has $100
million worth of total investments in a host of different,
bundled securities, calculated on the day's closing prices for
each individual asset, $7 million in cash and cash
equivalents, and $4 million in total receivables. For the
current day, your accrued income is $75,000, or a total of
$111,075,000 worth of assets.
Meanwhile, it also has $13 million in short-term liabilities, $2

million in long-term liabilities, and accrued expenses of
$10,000 for the day, giving you total liabilities of
$15,010,000 .Our mutual fund currently also has 5 million
shares outstanding.
($111,075,000 - $15,010,000) = $96,065,000/5,000,000 = $19.21/share.
*************************************************************************************
Why Is Net Asset Value Important?
I know you are probably wondering what you will use NAV for.
Well, NAV can give you an idea of what your investment is worth
on a daily basis and can tell you how well your mutual fund is
doing. Normally, the higher the mutual fund net asset value, the
higher the value of the mutual fund. If you purchased a share of a
bank's mutual fund for $100, then you would receive investment
income on the fund of $10 each year. If you can maintain a net
asset value of $100, you will earn 10% interest on your
investment, which is a higher rate than a savings account.
Net asset value is an important number to investors; it is from

NAV that the price per unit of a fund is calculated. This is the price
at which investors would purchase a share of an investment.
The following illustration shows a mutual fund quotation and its
interpretation.
FUND NAV NET YTD

CHG %RET
Fixed Income Fund 179.47 0.08 11.05
Equity Fund 255.82 0.03 30.31
Balanced Fund 135.67 0.01 21.34
FUND - Equity fund is the name of the fund. The fund aims to achieve long-term
capital growth.
NAV - Today, P255.82 is the net asset value per share.
NET - CHG (net change) -It is the difference between the price paid for the last share
today and the price paid for the last share the previous trading day. The Equity
Fund closed P0.03 higher than yesterday’s closing price.
YDT % RET ( year-to-date percentage return). The fund has a 30.31% return since
January 1.
RETURN ON INVESTMENT:
Aimee Bolivia invested in Growth Fund, a mutual fund. To determine
whether she had made a wise choice, she wanted to calculate her
return on investment. The return on investment for a mutual fund
depends on the increase in net asset value and on the dividends paid
from the fund. The following formula is used to calculate a mutual
fund’sreturn on investment
ROI = End of the year NAV + Dividend Distributions - Beginning of the year NAV
Beginning of the Year NAV
ILLUSTRATION:
Growth Fund’s net asset value on January 1 was P100. During the
year, the fund distributed P25 per share to investors. At the end of the
year, the net asset value was P104. Calculate the return on
investment.
ROI = End of the year NAV + Dividend Distributions - Beginning of the year NAV
Beginning of the Year NAV
ROI = 104 + 25 -100

100
ROI = __29__
100
ROI = 0.29
ROI = 29%
The return on investment is 29%

Assignment:
A. Calculate the return on investment (ROI)
1. NAV = P171.60 on January 1; NAV = P720 on Dec 31;

Dividend Distributions = P31.
2. NAV = P408 on January 1; NAV = P400 on Dec 31;

Dividend Distributions = P 17.80.
3. Peso Bond Fund’ s net asset value on January 1was P160. During
the year, the fund distributed P20 per share to investors. At the end
of the year, the net asset value was P162.
4. Short-term Fund’s net asset value on January 1, was p315. During

the year, the fund distributed P60 per share to investors. At the end
of the year, the net asset value was P 320.
B. Compute Net Asset Value (NAV).
1. You have been provided with the following assets and liabilities
details of Mutual Fund X as on February 10, 2020. Calculate its net
asset value as on that date.
Particulars Amount
Investments in various securities 234,000
Cash and cash equivalents 4,000
Total Receivables 16,200
Short term liabilities 6,760
Long term liabilities 14,600
Accrued expenses 2,000

Particulars Amount
Number of outstanding shares 2,500
2)
Let's assume at the close of trading yesterday that a
particular mutual fund held P20,480,000 worth of securities,
$1,876,000 of cash, and $410,000 of liabilities. If the fund had
800,000 shares outstanding, then yesterday's NAV would be?
3)If at the close of trading, a mutual fund has $8,000,000 worth of

assets, $200,000 of cash, and $500,000 of liabilities. The fund has
350,000 shares outstanding. What is the mutual fund net asset
value calculation?

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MUTUAL FUNDS

A mutual fund is a type of investment vehicle consisting of a

Mutual Fund is a fund managed by investment company.

Depending on the type of fund, the investment company buys

There are different types of mutual funds, some having

For example, if you invested $1,000 into a 5% load mutual

A no-load fund is a mutual fund in which shares are sold

Net Asset Value Formula:

 Cash and cash equivalents refer to the amount of cash

Accrued expenses could include salaries, utility payments, other

The number of outstanding shares may vary each day depending

Investments in various securities 200,000

Cash and cash equivalents 5,000

Total Receivables 20,000

Short term liabilities 7,000

Long term liabilities 17,000

Accrued expenses 1,000

Number of outstanding shares 1,000

NetAssetValue = Total Assets - Total Liabilities

2) Let's assume at the close of trading yesterday that a

NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00

A fund's NAV will change daily as the value of a fund's securities,

3) Example of Net Asset Value

Meanwhile, it also has $13 million in short-term liabilities, $2

($111,075,000 - $15,010,000) = $96,065,000/5,000,000 = $19.21/share.

Net asset value is an important number to investors; it is from

FUND NAV NET YTD

NAV - Today, P255.82 is the net asset value per share.

ROI = 104 + 25 -100

The return on investment is 29%

A. Calculate the return on investment (ROI)

1. NAV = P171.60 on January 1; NAV = P720 on Dec 31;

2. NAV = P408 on January 1; NAV = P400 on Dec 31;

4. Short-term Fund’s net asset value on January 1, was p315. During

B. Compute Net Asset Value (NAV).

Investments in various securities 234,000

Cash and cash equivalents 4,000

Total Receivables 16,200

Short term liabilities 6,760

Long term liabilities 14,600

Accrued expenses 2,000

Number of outstanding shares 2,500

3)If at the close of trading, a mutual fund has $8,000,000 worth of

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