Net Asset Value, Total Expense Ratio and Pricing of Units for NISM certification
NAV is the price at which investors enter and leave a scheme, and expenses come out of that NAV every day. This chapter shows how NAV is calculated, how securities are valued, how expenses are limited and which day's NAV an investor gets.
Mutual FundsSeries V-A60 MCQs5 lessons23 flashcards5 memory tricks
Practise Net Asset Value, Total Expense Ratio and Pricing of Units free
What you'll learn
- Calculating NAV
Compute NAV from a simple balance sheet of a scheme. - Valuing what the scheme holds
Explain how equity, debt and illiquid securities are valued. - The total expense ratio
Explain what the TER includes and apply SEBI's slab limits. - Which NAV applies: cut-off times
Find the applicable NAV for a purchase or redemption. - Prices investors pay and receive
Compute units allotted and redemption proceeds with stamp duty and exit load.
Key formulas
| NAV per unit | (Market value of investments + other assets − liabilities) ÷ units outstanding |
|---|---|
| Net assets | Total assets − total liabilities |
| Sale (purchase) price | NAV (no entry load) |
| Units allotted | (Amount − stamp duty 0.005% − transaction charge if any) ÷ NAV |
| Repurchase (redemption) price | NAV × (1 − exit load) |
| Redemption proceeds | Units × repurchase price (before tax) |
Concepts explained
Computing NAV
NAV = (investments at market value + other assets − liabilities) ÷ units outstanding, computed every business day.
What it means
- Accrued income adds to assets; accrued expenses are liabilities.
- Purchases and redemptions don't change NAV.
- Market moves, income, expenses and IDCW do.
- Investments ₹900 crore, cash ₹40 crore, accrued interest ₹10 crore
- Liabilities ₹30 crore → net assets ₹920 crore
- Units 46 crore
Answer: NAV = ₹20
Related terms
- Units outstanding: units issued minus units redeemed
Total expense ratio
TER is a scheme's annual recurring expenses as a % of its daily net assets; SEBI caps it by slabs so bigger schemes charge less.
What it means
- Equity first ₹500 crore: 2.25%; other schemes: 2.00%.
- Index funds/ETFs: 1.00%.
- Direct plans exclude commission and have a lower TER.
- NFO expenses are borne by the AMC.
- Equity scheme, net assets ₹600 crore
- 500 × 2.25% = 11.25
- 100 × 2.00% = 2.00
- Total 13.25 ÷ 600
Answer: ≈ 2.21%
Related terms
- Daily accrual: TER ÷ 365 charged on each day's net assets
Cut-off times
For non-liquid schemes, funds realised before 3 pm get that day's NAV; for liquid/overnight purchases, funds before 1:30 pm get the previous day's NAV.
What it means
- Purchase NAV depends on when funds are realised.
- Redemption before 3 pm: same day (non-liquid).
- Switches follow each scheme's own rules.
- Funds and form received Tuesday 1 pm
- Before 1:30 pm cut-off
Answer: Monday's NAV (day before receipt)
Swing pricing
Swing pricing lowers the NAV for investors transacting during heavy outflows in debt schemes, so exit costs fall on those leaving, not those staying.
What it means
- Mandatory only in a SEBI-declared market dislocation.
- Applies to certain open-ended debt schemes.
- Not an exit load and not a penalty.
Memory tricks
NAV = (assets − liabilities) ÷ units outstanding.
Liquid/overnight purchase cut-off 1:30 pm; other schemes 3:00 pm.
First ₹500 crore: equity 2.25%, other schemes 2.00%.
Maximum TER for index funds and ETFs is 1.00%.
Purchases and redemptions don't change NAV.
Try 3 NISM-style questions
Q1. Which of these increases a scheme's NAV per unit?
- New investors buying units at the day's NAV
- Daily accrual of the management fee and other expenses
- Payment of IDCW
- Interest income accrued on bonds held
Show answer
Answer: (4) Interest income accrued on bonds held
Accrued income adds to net assets.
Q2. By when are mutual fund NAVs required to be uploaded on AMC and AMFI websites each business day (as of Nov 2026)?
- 9 am the same day
- Noon the next week
- Midnight on Sunday
- 11 pm
Show answer
Answer: (4) 11 pm
Daily NAVs are to be uploaded by 11 pm (FoFs by the next morning).
Q3. The total expense ratio is expressed as a percentage of
- The scheme's daily net assets (annualised)
- The investor's annual income (annualised)
- The AMC's profit
- The amount raised in the NFO
Show answer
Answer: (1) The scheme's daily net assets (annualised)
TER = annual recurring expenses ÷ average daily net assets.
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