Series NAV
The NAV of one series of units within a class: Series Assets less Series Liabilities and Series Expenses on a Valuation Day, divided by that series' units and rounded to four decimals.
In plain language
A Category III AIF can give different investors different terms — usually different management fees — depending on how much they commit and when. It records those differences by issuing classes of units, and within a class, distinct series.
Once investors pay different fees, they cannot all have the same NAV. A series charged 1.50% must end the year with a higher NAV per unit than an identical series charged 2.00%. Series NAV is how the fund works that out.
The workbook defines it as the NAV of each series of units within a particular class, equal to Series Assets, as reduced by Series Liabilities and Series Expenses, as on a Valuation Day, divided by the number of units issued under that series, rounded to four decimal places. The NAV per unit of each series on a Valuation Day is its Series NAV.
How it works
The three building blocks:
- Series Assets — the fund's assets attributable to the series:
Series Assets = Total assets of fund × Opening Series NAV ÷ Total of all Opening Series NAVs
- Series Liabilities — the fund's liabilities on the Valuation Day, allocated in proportion to Opening Series NAV.
- Series Expenses — management fees (with GST) and incentive fees attributable to the series under the Contribution Agreement; fund expenses specifically attributable to the series; and fund expenses not specifically attributable, allocated in proportion to Opening Series NAV.
Opening Series NAV is the Series NAV on the Valuation Day immediately before the current one. For a new series, on its first Valuation Day it equals the amount drawn down against its units.
Why the allocation drifts. A series that pays lower fees ends each period with a slightly larger share of net assets, so it is allocated a slightly larger share of assets next period. In a year when the fund grows, that series gains a little more than the others.
The limit. The workbook adds that, as per a recent SEBI circular, no Category III AIF can adopt a priority distribution model in which one class gets a higher share of profits at the cost of another class.
A worked example
The workbook's Fund SER (Example 6). Commitments Rs 50 crore, 5,00,000 units at Rs 1,000. Year 1: total assets Rs 67.60 crore, liabilities Rs 3 crore, fund expenses Rs 80 lakh (Rs 30 lakh yearly plus Rs 50 lakh set-up).
Management fee with 18% GST, on each series' share of gross assets (Rs 64.60 crore):
A1 (40%): 1.50% × Rs 25.84 crore × 1.18 = Rs 45,73,680
A2 (20%): 2.00% × Rs 12.92 crore × 1.18 = Rs 30,49,120
B1 (30%): 2.00% × Rs 19.38 crore × 1.18 = Rs 45,73,680
C1 (10%): 2.00% × Rs 6.46 crore × 1.18 = Rs 15,24,560
Series NAV per unit, Year 1:
| Series | Assets | Liabilities | Expenses | Mgmt fee | Net assets | Units | NAV/unit |
|---|---|---|---|---|---|---|---|
| A1 | 27,04,00,000 | 1,20,00,000 | 32,00,000 | 45,73,680 | 25,06,26,320 | 2,00,000 | 1,253.1316 |
| A2 | 13,52,00,000 | 60,00,000 | 16,00,000 | 30,49,120 | 12,45,50,880 | 1,00,000 | 1,245.5088 |
| B1 | 20,28,00,000 | 90,00,000 | 24,00,000 | 45,73,680 | 18,68,26,320 | 1,50,000 | 1,245.5088 |
| C1 | 6,76,00,000 | 30,00,000 | 8,00,000 | 15,24,560 | 6,22,75,440 | 50,000 | 1,245.5088 |
Series A1's lower fee is worth Rs 7.6228 per unit in one year. In Year 2 its allocation share rises from 40% to 40.15% (Rs 25,06,26,320 ÷ Rs 62,42,78,960), and its NAV per unit reaches Rs 1,498.5885 against about Rs 1,480 for the rest.
Why NISM asks about it
Chapter 8 (Valuation), section 8.3 — Computation of NAV for a Category III AIF vs. NAV attributable to a series of units defines Series NAV, Series Assets, Series Liabilities, Series Expenses and Opening Series NAV, and works Fund SER through two years. Chapter 8's fourth sample question is a fill-in-the-blank whose answer is Series NAV, with Fund NAV, Class NAV and Series Assets as the distractors. Section 8.1 introduces classes and series of units.
Common exam traps
- Series NAV is net of Series Liabilities and Series Expenses; Series Assets is only the first building block — the sample question's distractor.
- Rounded to four decimal places.
- Allocation uses Opening Series NAV — the previous Valuation Day's Series NAV, or the amount drawn down for a new series.
- Differential fees are charged to the series; common expenses are shared in proportion to Opening Series NAV.
- A workbook typo. Example 6's Year 2 table allocates 40.15% to Series A1, but the note below says the share rose "from 40% in Year 1 to 40.11%". The arithmetic (Rs 25,06,26,320 ÷ Rs 62,42,78,960) gives 40.15%.
- Lower fees for one series are allowed; a priority distribution model is not.
Check yourself
1.Which measure reports the value of assets attributable per unit to investors in a series, reduced by the liabilities and expenses apportioned to that series, as on a Valuation Day?
- a)Fund NAV
- b)Class NAV
- c)Series NAV
- d)Series Assets
Show the answer
Answer: (c) Series NAV
This is the workbook's own sample question. Series NAV shall be equal to Series Assets, as reduced by the Series Liabilities and Series Expenses, as on a Valuation Day and divided by the number of units issued under such Series, rounded to four decimal places. Option (d) is the near-miss — Series Assets is only the first term, being total fund assets multiplied by the ratio of that series' Opening Series NAV to the total of all Opening Series NAV, before liabilities and expenses are deducted.
2.In Fund SER, Class A1 units pay a 1.50 per cent management fee while all other classes pay 2.00 per cent. What happens to A1's share of the fund over time while NAV is rising?
- a)It stays fixed at 40 per cent, since allocation always follows original commitments
- b)It rises — from 40 per cent in Year 1 to 40.15 per cent in Year 2 — because Year 2 allocation runs on Series Net Assets, so the fee advantage compounds
- c)It falls, because the lower fee reduces the assets allocated to that class
- d)It is irrelevant, since all classes must show the same NAV per unit
Show the answer
Answer: (b) It rises — from 40 per cent in Year 1 to 40.15 per cent in Year 2 — because Year 2 allocation runs on Series Net Assets, so the fee advantage compounds
Year 1 allocation ran on opening commitments, giving A1 40 per cent. Year 2 allocation runs on the Series Net Assets of the series in consideration, as a proportion of the Total Net Assets in the fund, at the end of Year 1 — and because A1's lower fee left it with a higher Series NAV, its share rose. The workbook notes that the allocation percentage for Class A1 Units has increased minimally from 40 per cent in Year 1 to 40.15 per cent in Year 2 and that in the years a Category III AIF is increasing its Net Asset Value, it will be beneficial for Class A1 unit holders.
3.A Category III AIF has issued several classes of units, with separate series within Class A2. How must its NAV per unit be computed?
- a)Once for the whole fund, rounded to two decimal places, and applied equally to every class
- b)Separately for each class, but not for series within a class, rounded to the nearest rupee
- c)Separately for each class of units or series of units, rounded up to four decimal places
- d)Only for the class with the highest Management Fee, since other classes are derived from it
Show the answer
Answer: (c) Separately for each class of units or series of units, rounded up to four decimal places
NAV per unit is the net value of the assets attributable to each class or sub-class, after its liabilities, contingencies, losses and expenses, divided by the units issued, ‘rounded upto four decimal places’. The workbook adds: ‘The NAV per unit shall be calculated separately for each class of units or a Series of units’. Series NAV is also ‘rounded upto four decimal places’.
- A single fund-wide NAV ignores differential fee structures. The workbook says ‘all classes of units or investors in the Fund may not derive the same Net Asset Value’.
- Series within a class get their own Series NAV. The Investment Manager allocates a unique number to each series of units so that the differential rights can be identified.
- No class serves as a base from which the others are derived.
Where this is taught
- Series XIX-B · Chapter 8: Valuationintroduced here
- Series XIX-C · Chapter 14: Valuationintroduced here
- Series XIX-E · Chapter 12: Valuationintroduced here
Related terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Class of UnitsA group of units in a Category III AIF carrying its own rights — typically its own fee terms — assigned by size and timing of commitment; NAV is computed separately for each class or series.
- Gross Net Asset ValueThe value of a Category III AIF's assets before incentive fees are deducted — and the base on which management fees are charged, which is why it is not the same as the NAV investors see.
- Management FeeThe fixed annual fee an AIF pays its investment manager for managing the fund — charged on committed capital in Category I and II funds and on gross NAV in Category III, regardless of performance.
- Priority Distribution ModelA structure in which one class of investors bears more loss than its pro-rata share because another class has priority in distribution — no Category III AIF scheme may adopt it.
- Valuation DayThe day, fixed in advance by a Category III AIF and disclosed in its offer documents, as on which its NAV is determined — at least monthly for open-ended funds and quarterly for close-ended ones.
- SeriesA sub-division within a class of a Category III AIF's units — distinct and exclusive from any other series of the same class, created to identify a different set of investors, with its own NAV.
- Beneficial InterestAn investor's share in a Category III AIF represented by the units it holds — the basis on which units are allocated and distributions or liquidation proceeds are paid out.
- DP agreementThe contract between a depository participant and a Category III AIF as beneficial owner, setting out each side's rights and duties for depository services such as dematerialisation.