Unit-Value Method
The mutual fund method of unit value accounting puts everything on a dollars-per-unit-purchased basis and automatically provides data for calculating time-weighted returns.
Considering the rather confusing discussions relatede to MWR/TWR and all their approximations and versions, the above sounds almost too simple. But it is a fact that for example in the USA, Rule 22c-1(b) under the 1940 Act requires that an open-end fund compute the NAV (net asset value) per share at least once each business day since more than 60 years as of 2005, the year the CFA Institute released the revised GIPS standards allowing asset management companies to use approximation TWR methods until 2010...
A mutual fund collects money from the investors, issues certificates to them known as units and invests the money collected in securities so as to achieve mutual benefits in terms of capital appreciation in such securities. It is a non-depository, non-banking financial intermediary, which acts as an important vehicle for bringing wealth holders and deficit units together indirectly. Dealing with withdrawals and contributions and therefore being able to calculate a daily price per unit is a constituting facor of a mutual fund.
Mutual funds sell their shares to public and redeem them to current net asset value (NAV) which is calculated as...
NAV = {Total MV off all holdings - All liabilities}/No. of units outstanding
...or...
NAV = {Market value of Scheme's Investments + Receivables + Accrued +
Income + Other Assets - Accrued Expenses - Payables - Other Liabilities}/
No. of units outstanding
The Net Asset Value of a mutual fund scheme is basically the per unit market value of all the assets of the scheme. As a result, the calculation of mutual fund performance can directly use beginning and ending NAV when calculating returns. Additionally, all disbursements D (cash and and capital gains) have to be considered...
R(t) = { NAV(t) - NAV(t-1) + D(t) } / NAV(t-1)
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