Uma Shashikant on Sat, Oct 2nd, 2010 9:23:05 am
Thanks, Supraja. The confusion arises from equating 'income earned' to 'income distributed'. The questions does not say that the income was distributed, it was only earned. In which case it is already in the NAV. If it has been distributed, it surely forms part of the return to the investors, and your interpretation holds.
Supraja on Fri, Oct 1st, 2010 10:00:49 am
Being a CA student i'd like to share my interpretation.
The return from the fund includes regular income and the capital gain. Accordingly, the distributed income and capital gain of 0.0675 forms part of the return. Also, the unrealised capital gain ( from investor's perspective ) of 0.06 (20.06-20.00) is included as a part of return. I perceive it is correct since:
1) The distributed capital gain during the intermittent period is already reduced while computing the NAV at the end of the period.Hence is there is no double counting.
2)Though a question may arise about the prudence of including undistributed gain, it is correct since the NAV is computed after excluding the expenses and liabilities for the period ("net" assets) and hence it forms part of the holding return earned by the investor without any further possible charge on it.
The above holds good for calculating return from funds also!
Uma Shashikant on Wed, Sep 22nd, 2010 11:13:14 am
The question does not clearly indicate whether the return has to be calculated for the fund or for the investor in the fund. There will be no difference in calculation, unless the fund has distributed any income to the investor.
The investor's return depends on the NAV, so the investor's return is simply the difference between the NAV on the two given points that represent the holding period. ((20.06-20.00)/20.00)
The fund's return is the income and capital gain earned, which should reflect in the NAV. In any case, it cannot be BOTH income and capital earned and change in the NAV as the suggested answers indicate.
Prakash Ranjan Sinha on Tue, Sep 21st, 2010 4:57:57 pm
In the question it is not clear the income earned and capital gain earned is for the fund or for the investor. Also as they have asked for monthly return or annual return ( not clear for fund or for investor )I believe we have to take it for fund and not assume whther income has been distributed or not and so the answer given by ICAI is correct which is more assuming return for investor
In case it is of fund then what calculated by Mr Mehta is correct. But Mr Mehta has assumed certain things of his own which is not mentioned in the question.