A Mutual Fund having 300 units has shown Net Asset Value (NAV) of ₹ 8.75 and ₹ 9.45 at the beginning and at the end of the year respectively. The Mutual Fund has given two options: (i) Pay ₹ 0.75 per unit as dividend and

Basic data for Computation Opening NAV: ₹ 8.75 Closing NAV: ₹ 9.45 Dividend: ₹ 0.75 Capital gain appreciation [Closing NAV - Opening NAV]: ₹ 0.70 Capital gain distribution: ₹ 0.60 Price paid at the year beginning [300 units x ₹ 8.75]: ₹ 2,625 Option I: Returns are distributed to Mutual Fund Holders Total Fund Assets: NAV on closing date [₹ 9.45 x 300]: ₹ 2,835 Dividend payable [₹ 0.75 x 300]: ₹ 225 Capital gain distribution [₹ 0.60 x 300]: ₹ 180 Total: ₹ 3,240 Returns: (₹ 3,240 - ₹ 2,625) / ₹ 2,625 = 23.43% Option II: The distributions are reinvested at an average NAV of ₹ 8.65 per unit (i) Distribution reinvested Capital gain [₹ 0.60 x 300]: ₹ 180 Dividend [₹ 0.75 x 300]: ₹ 225 Total Distribution: ₹ 405 No. of units [Total distributions ÷ Average NAV per unit = ₹ 405 ÷ ₹ 8.65]: 46.82 (ii) Preparation of fund position NAV on closing date fund assets: 300 units @ ₹ 9.45: ₹ 2,835.00 46.82 units @ ₹ 9.45: ₹ 442.45 Total: ₹ 3,277.45 Returns: (3,277.45 - 2,625) / 2,625 = 24.85% Conclusion: From the above, it can be said that reinvestment option is better as it yields higher return by 1.49%.