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NET ASSET VALUE - WHAT DOES IT MEAN ?

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561


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Over the past years, the Securities Commission (SC) has taken positive steps to promote the fledgling local unit trust industry. In its efforts to encourage more foreign and local players to participate in the local market, various measurements have been announced to liberalize the local funds management industry.

The local authorities' concerted efforts to strengthen the regulatory framework for unit trust companies and promote a disclosure-based environment has slowly increased transparency in the funds management industry. These measures are important for the protection of the unit trust investors.

With the industry still at its infant stage, the retail investors account for 70% of the total market volume with the remaining from institutional players. However, most investors still favour investing directly in the stockmarket. Lack of knowledge and confidence about unit trust funds are among the reasons identified.

A regulatory environment is needed to protect the interest of the public and to facilitate the rapid growth of the unit trust industry. The public should be well informed of every aspect of the unit trust funds before they invest. Proper dissemination of information is a prerequisite for increasing confidence among investors and enables them to make wise investment decisions.

One of the new regulations which was unveiled back in May 1997 requires unit trust managers to disclose their Net Asset Values (NAV). This regulation is certainly something that investors have been waiting for.

The public should take advantage of this new revision in assessing the fund managers as it enables them to gauge the actual cost of buying the unit trust funds. Most fund managers would welcome the move as it is likely to enhance the degree of professionalism in the industry.

What is the NAV and its relationship with the unit trust prices and how will the new guideline requiring the fund managers to disclose their NAVs help you as an investor?

The Net Asset Value or NAV is basically the "true" value of an investment fund at any point in time. It is computed by taking the total value of the Fund, subtracting the liabilities, and dividing by the number of unit on issue. The liabilities normally include the Trustee's and Manager's fees, and various expenses and charges (refer to your prospectus for a detailed breakdown).

Net Asset Value

Table 1 illustrates sample calculations of the NAV.

Table 1. Calculations of the NAV

Fund

Net Value of Fund
(RM'000)

Units in circulation
('000)

NAV/Units
(RM'000)

A

60

60

60/60=1.00

B

150

100

150/100=1.5

C

200

100

200/100=2.00



Fund A has a net value of RM60,000 with units in circulation of 60,000. Thus, the net asset value per unit for the Fund is RM1.00. The NAV is computed at the end of the day for a unit trust fund.

In Malaysia the pricing of units (the bid and offer) is based on a practice which originated in England. Bid refers to the buying or repurchase price while offer represents the selling price.

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