Why investors should not be worried about round figures?
Investors are often faced with a strange situation in some mutual funds which is that they are unable to invest in these funds because the fund house has restricted the amounts that they would accept from investors. This happens usually during good times because the values in the markets have risen to such levels that there are few opportunities left for funds to invest. It is also common to see this in case of mid and small cap funds. This has a special meaning as far as the investor is concerned and here is how they should actually go about looking at the process.
Net asset value
The Net Asset Value (NAV) is the value at which the assets of the fund are currently worth and this is the figure at which various transactions for the purchase and the sale of units take place. If one is familiar with the working in the stock markets then they will know that the prices move in specific time intervals and hence there is usually a difference of around 5 paise when it comes to the prices In case of the NAV of the fund the actual value of the assets less the liabilities on a certain day would be the value and that there is no worry if the figure does not come to a round figure. Thus the NAV can change by any amount including 2 paise or 1 paise and this is something that needs to be known. The NAV thus represents the exact value as on a particular date and it could be any figure going into decimals.
Units
The fallout of the manner in which the NAV is calculated is clearly seen on the number of units that a person holds with them. In case of shares or bonds or debentures the number of the assets that are held are usually a complete number. An investor can hold 1 share or they can hold 27 shares or they can also hold 100 shares. Similar is the situation with a bond and a debenture and this depends on the buying capacity of the investor and the manner in which they make the investment. A mutual fund is completely different because the number of units that are held by them will not be a whole number but will be present in decimals. This can make the situation a bit difficult for investors but they are actually getting full value for their money so it is a good thing for them. Based on the amount that has been invested by them they will get the units depending on the NAV which ultimately ensures that they are getting a stake in the investment for every rupee that they put in.
Dividends
The mutual funds declare a dividend that is based on the performance of the fund and this can be any figure thus one will find that the dividend figure is not an exact round figure. This dividend depends on the amount that can be paid out by the fund and the fund manager will look at this aspect as they decide on the figure. In addition to this the units are also in decimals so when the investor goes back and looks at the dividend that they are going to receive then this will also come out to be a figure that is not a round number. This is based on a simple calculation since the units can be anything the dividend will come out accordingly, the good part for the investor is once again the fact that they are getting every small bit that is owed to them and are not being left out of any benefit in the name of rounding off.
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