Mr. DK has 1,000 units of AM Mutual Fund. NAV of it is 17.50 per unit and - 18.90 per unit at the beginning and at the end of the year respectively.…

(i) Returns for the year (All changes on a Per -Unit Basis) Change in Price 18.90 -17.50 = 1.40 Dividends received 1.50 Capital gains distribution 1.20 Total reward 4.10 Holding period reward: 4.10 / 17.50 × 100 = 23.43% Alternative Solution (₹) Opening Asset Value: Price paid at the year beginning (1000 x 17.50) 17,500 Closing Fund Assets: NAV on Closing date 1000 unit x 18.90 18,900 Dividend Payable 1000 units x 1.50 1,500 Capital Gain Distribution 1000 units x 1.20 1,200 Total 21,600 Return = (Closing Fund Assets – Opening Asset Value)/Opening Asset Value = [(₹ 21,600 - 17,500)/17,500] x 100 = 23.43% (ii) Distribution Reinvested at an average NAV of 17.30 Distribution reinvested = Dividend - 1,500 + Capital Gain - 1,200 = 2,700 Additional Units (Distribution/ Average NAV) ₹ 2,700/17.30 = 156.07 units Total no. of units = 1,000 + 156.07 = 1,156.07 units Total NAV on closing date = (1,156.07 units x 18.90) = 21,849.72 Price paid at the year beginning (1000 x 17.50) = 17,500 Return = (21,849.72 -17,500)/17,500 = 0.2486 or 24.86% Note: Alternatively above computation can also be done based on per unit basis. Conclusion: Since the holding period reward is more in terms of percentage in option-two i.e., reinvestment of distributions at an average NAV of 17.30 per unit, this option is preferable.