Lesson eLearning

A mutual fund has just issued 200,000 units at ₹20 each. The net asset value (NAV) of the fund is ₹18 per unit. If the expense ratio of the fund is 2%, what is the gross asset value (GAV) of the fund before expense charges?

medium 2 marks Class 12 · Business Studies · Financial Markets
Answer
₹36.73 lakh

The correct answer is ₹36.73 lakh — Convert to lakh: ₹3,673,469.39 ≈ ₹36.73 lakh.

Step-by-step solution

  1. Compute total NAV: 200,000 units × ₹18 = ₹3,600,000.
  2. Let GAV = x. Expense = 0.02x, so NAV = (x – 0.02x)/200,000 = 0.98x / 200,000.
  3. Set 0.98x / 200,000 = 18 ⇒ 0.98x = 3,600,000 ⇒ x = 3,600,000 ÷ 0.98 = ₹3,673,469.39.
  4. Convert to lakh: ₹3,673,469.39 ≈ ₹36.73 lakh.
Common mistake: Assuming NAV is before expense or forgetting to divide by 0.98

Concept tested: NAV and GAV relationship with expense ratio

Published · How this solution was prepared and checked

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