A reader says, “Suppose my whole funding in a mutual fund is Rs. 12,000, and its present market worth is Rs. 17,000. If I redeem Rs. 8000, how do I calculate the present whole funding?”
Every time we spend money on a mutual fund (or inventory), we purchase models at market worth. Every time we redeem, we promote at market worth. So, the redemption may have two elements – capital good points (or losses) and capital invested.
Discovering the capital good points related to every funding is cumbersome (if we have been to DIY), and my normal advice for many who spreadsheet trackers is to not fear an excessive amount of about modifications in whole funding after redemptions because it won’t impression the annualised return calculation in any method.
Allow us to illustrate this with an instance. Think about three MF purchases for Rs. 1000 every on these dates.
| Date | NAV (Models) |
| 01-01-2010 | 17 (58.8) |
| 02-02-2010 | 16 (62.5) |
| 04-05-2010 | 19 (52.6) |
For simplicity, we’re truncating models as much as one decimal place. In actuality, 4 decimal locations are used for the NAV and, therefore, for the models.
As of 04-04-2024, the NAV is Rs. 45 per unit, and the market worth of 173.9 models is Rs. 7827.9. Suppose we redeem Rs. 5000 on the identical date.
This corresponds to 111.1 models bought again to the AMC. The redemption is on a first-in, first-out (FIFO) foundation. So, 58.8 models bought on 1-1-2010 will likely be redeemed. The remaining 52.3 models (111.1 minus 58.8) will taken from the 62.5 models bought on 2-2-2010.
The acquisition worth of the 58.8 models is Rs. 17/unit. Their sale worth is Rs. 45 per unit. So, the capital acquire is =58.8*(45-17) = Rs. 1646.4
Equally, the acquisition worth of the 52.3 models is Rs. 18 per unit. Their sale worth is Rs. 45 per unit. So, the capital acquire is s =52.3*(45-16) = Rs. 1516.7
The whole capital acquire is 1646.4 + 1516.7 = Rs. 3163.1. Thus, our redemption of Rs. 5000 has two elements. A capital acquire of Rs. 3163.1, and the stability (Rs. 1836.9) is our capital invested.
You will need to acknowledge that we can not “ebook income” alone from a inventory of MF. Some chunk of the invested capital will at all times be current. Additionally, see: Do you know what happens when money is redeemed from a mutual fund?
So, after the redemption, can we are saying the online capital invested is Rs. 3000 minus Rs 1836.9 = Rs. 1163.1? Sure, however for my part, it’s of little use. As talked about above, the XIRR or annualized return calculation doesn’t want the online funding.
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