How can capstock affects the NAV?

Question

Accepted Answer

Capstock can affect the NAV by impacting the valuation of the fund's investments.

Capstock refers to the capitalization of a stock, which is the total value of a company's outstanding shares.
If a fund holds capstocks that experience a significant increase or decrease in value, it can impact the Net Asset Value (NAV) of the fund.
An increase in the value of capstocks held by a fund can lead to an increase in the NAV, as the overall value of the fund's investments rises.
Conversely, a decrease in the value of capstocks can result in a decrease in the NAV.
For example, if a fund holds a large portion of its assets in capstocks of a company that performs exceptionally well, the NAV of the fund will likely increase.
On the other hand, if the capstocks held by the fund experience a decline in value, the NAV will likely decrease.
It is important for fund accountants to closely monitor the performance of capstocks and their impact on the NAV to ensure accurate valuation of the fund.

Accepted Answer

every Subscription increases Total Net Assets(TNA) and the number of Capstock Shares and every Redemption decreases TNA and the number of Capstock Shares – these transactions change the numerator as well as the denominator in the formula.

How can capstock affects the NAV?

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