How to determine the value of your mutual fund

[istoryamember]

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I got this from another forum site and since dili pa ko ka ask sa poster if this is right or wrong, gusto ko mahibal-an from the experts here sa istorya if sakto ba ni iya gi explain? I have been trying to understand MF and now it seems that ni contradict siya sa ako na hibal-an. If you can see, at Year 2, wala na niya i-apil ang Year 1 sa computation. Paki check daw if sakto ba siya or dili.

Assume you have P100,000 and you're thinking of investing in Mutual Fund A whose current (ie., Year 0) NAVPS is P1.00.

Assuming there are no sales loads and no other fees involved, you will be getting 100,000 shares of Mutual Fund A:

P100,000 total investment amount / P1.00 NAVPS = 100,000 shares

You know NAVPS fluctuates daily depending on a number of factors, but assume that at the end of Year 1, Mutual Fund A's NAVPS increased to P2.00. Your "income" after 1 year, then, is:

P2.00 Year 1 NAVPS
1.00 Less: Year 0 NAVPS

P1.00 Increase in NAVPS

In effect, after 1 year you "earned" P1.00 per share of Mutual Fund A

100,000 Total Shares Held
P1.00 Increase in NAVPS

P100,000 Total Income after Year 1

Because you have 100,000 shares of Mutual Fund A, you "earned" a total of P100,000 (100,000 shares x P1 income per share) after Year 1.

Of course, you still have that initial investment of P100,000 so the TOTAL FUND VALUE of your investment is now P200,000.

Note that the FUND VALUE is the one that increased and not the NUMBER OF SHARES held.

Here I referred to income as "income" and earned as "earned" because this "profit" is actually just a PAPER PROFIT. This means the gain has not been REALIZED yet. The only way to realize a gain from mutual funds is to redeem the shares.


Let's extend the example to Year 2. Assume that at the end of Year 2, the NAVPS of Mutual Fund A fell to P0.50. Let's review first:

1. How many shares again of Mutual Fund A do you have? 100,000 shares.

2. At what price did you buy these shares? P1.00 per share

3. How much is the total value of these shares at the end of Year 1? P200,000.

4. How much was the NAVPS of those shares at the end of Year 1? P2.00 per share.

5. At the end of Year 2, what are the only things you should be concerned about? #1 and #2.

At the end of Year 2, the total investment value (#3) and the NAVPS of Year 1 (#4) DON'T MATTER anymore. Don't forget that.

Here's how to compute the gain (or loss) for Year 2:

P0.50 Year 2 NAVPS
P1.00 Year 0 NAVPS (NAVPS when you bought the shares)

P0.50 Decrease (Loss) in NAVPS

Simply speaking, the shares which you initially bought at P1.00 per share are now valued at just P0.50. In effect, you "lost" P0.50 per share.

What's the total "loss"?

100,000 Total Shares Held
P0.50 Loss per Share

P50,000 Total Loss

Because this is a "loss", this should not be added but rather, deducted from your P100,000 initial investment. Thus, the TOTAL FUND VALUE of your investment is now just P50,000.

Fortunately, this is another PAPER LOSS because it is not an ACTUAL LOSS. You will only incur this loss if you decide to redeem the shares.

source: How to determine the value of your mutual fund

[jeshcel]

as far as i have understand. sakto na xa nga computation. ambot lang pud ug sakto akong pag understand. di man shares ang modaghan gud ang fund value ra man.

this is the case when di ka mag cost averaging. if motaas, motaas gyud pud but if mo ubos, ubos gyud.

[istoryamember]

yes not the share ang modaghan but the value of your share motaas. pero what I don't clearly understand is that why dili na niya i-apil sa computation ang previous years? If that is the case nga wala na labot ang previous years, there is no compounding going on.

[neshem]

its like naa kay saging ang presyo gahapon kay tag 2...karon kay tag 1..xmpre kung ibaligya nimo karon imong halin 1, it doesnt matter pila ang price yesterday. wala man midaghan imong saging, ang price ra ang nag usab usab.

[Dhong]

dili na iapil kay gitawag bitaw na ug NAVs kay Net asset value per share, meaning after loss/gains na sa total pooled and invested funds, walay significance ang number of years sa computation but the current net asset value multiplied by the number of shares.... mao na imong fund value, naa bay compounding nahitabo, syempre after year 1 the MF Company was able to reinvest double the amount after the year 1gains, it just happened nga na loss ang company at year 2

[istoryamember]

@Dhong: ok so gi reinvest sa MF company. If gi reinvest ang iyang P 100K bisan ug sa Year 2 nahimo nlang nga 0.50 per share, dapat dili siya mo yield ug 50K. Sa example man gud totally wala na jud niya gamita ang income sa Year 1. Naa man ta to income nga 100K sa Year 1

[istoryamember]

its like naa kay saging ang presyo gahapon kay tag 2...karon kay tag 1..xmpre kung ibaligya nimo karon imong halin 1, it doesnt matter pila ang price yesterday. wala man midaghan imong saging, ang price ra ang nag usab usab.

with regards sa price, wala koy question diha kay sakto na siya. ang ako lang gi ask is ang pagka compounding niya. If baliwala-on nimo ang previous years nga income, meaning wala siyay compounding? sa example man gud, pag abot sa year 2 kay gi kwenta ra ang 100K nga investment then ang 0.5 nga price.

[Dhong]

kana gud explanation sa above bro kay sa imo man na nga profit/loss statement, unsaon nimo pag determine sa imo fund value....ayaw na na hunahunaa what happened sa profit at year 1 kay wala man nag redeem pag tapos sa year 1, sakto kaayo na ang explanation above, kanang gains after year 1 makita ra na sa financial statement sa MF company

[istoryamember]

ok so no compounding effect if that is the case. Thanks for the clarification.

[neshem]

ang imong ginapakita na compounding is dili nimo makita...ang fund manager na kung giunsa niya pag invest og balik ang kita last year sa karon na year.
naapil na count ang last year bro,in the sense,bali sa sa year 2 ang start niya puhunan kay 200k na. but due to poor performance sa market/manager..mao nga ang investment nimo valued na lang 50k.

kung gusto nimo makita ang compounding effect sa imo investment ing ani imo pwede mabuhat.atong year 1 u know na boom ang economy og naa sa edge anytime kay moabot na ang crisis so u decided to wthdraw ur investment, from 1/NAVPS nahimong 2/NAVPS. so naa ka 200k nkuha gkan sa initial nimo na investment na 100k, 100% return.double ur money in one year,nice. now kabalo ka na some how pahuman na ang crisis, anytime morecover na ang market so u decided to put back ur money sa MF. karon tag .50 na lang ang NAVPS, so imong 200k makabuy kag 400k ka shares.

but if imo ra pasagdan magsakay sakay sa fluctuation sa NAVPS then ana nga year imo i redeem ang value sa imo MF kay NAVPS x pila imong shares.