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Valuation


        
Net Asset Value  (NAV) could reflect the total  value of assets that the fund invested in at any specific period of time. The calculation of  NAV is base on mark to market method which shall recognize market value of those assets. For example, where the fund invests in common stock listed in the stock market, market value of such common stock is its closing price on that date. As a result, the fund value could change as the affection of market at any moment. Besides, there is a unitization system introduced to provident fund system, this means that  fund value will be unitized into units. This could facilitate member in monitoring fund performance since value per unit can reflect the performance of the fund.

   What is "Mark to Market"?

               "M to M" is a method used to assess the fund assets ranging from stock, debenture to government bond. For example, If the fund wants to invest in Stock A traded in the stock market, the fund will have to buy it at the market price. If two months later the fund wants to sell Stock A, the fund will also have to sell it at the market price. The price may increase, decrease or remain stable when compared to the cost of obtaining Stock A.

                The followings are examples of market price used to assess the asset value of the fund :

                    
 Stock is assessed by the closing price in Stock Exchange of Thailand.

                     Bond/Debenture is assessed by using the latest yield in Thai Bond Dealing Center.

                     Mutual Fund Unit is assessed by the net asset value per unit at the end of the day.

                     Deposit/Promissory Note is assessed by using the sum of principal and accrued interest.
 

              Why we use "Mark to Market"?

              
 1. To promote fairness in asset and benefit distribution of the fund to all members
                        
Example : Net asset value per unit equals to 10 baht

                                
Situation 1 : If the market price of the bond held by the fund is higher than its cost, there will be an increase in the fund's assets value per unit e.g. 11 baht. If the fund uses the 10 baht cost as a base in calculating benefits for its existing members, new members and resigned members, the results are...
 

 Existing Members

New Members

Resigned Members

 

 

 

Lose

Gain

Lose

Calculated benefits are less than the actual ones.

New members gain because they join the fund with the lower price.

Resigned members get only 10 baht instead of 11 baht.

                   Situation 2 : If the market price of the bond held by the fund is lower than its cost, there will be a decrease in the fund's asset value per unit e.g. 9 baht. If the fund uses the 10 baht cost as a base in calculating benefits for its existing members, new members and resigned members, the results are...

Existing Members

New Members

Resigned Members

 

 

 

Gain

Lose

Gain

Calculated benefits for existing members are more than the actual ones.

New members lose because they join the fund with the higher price.

Resigned members get only more than what they should.


              If all the assets of the fund are marked to market, there will be no advantage or disadvantage to anyone.
 

               2.To promote fairness in asset and benefit distribution of the fund to all members
                    Members will immediately know whether the funds are effectively managed or not. The information obtained can assist members in deciding on which funds to invest or which asset management companies to be chosen.

                    Furthermore, M to M technique is relevant to the international standard. Most of the countries that have established pension funds or provident funds apply M to M technique to calculate their fund asset value. It's fair to every group of members. Examples of those countries are Hong Kong, Singapore, Japan, India, Australia, England and OECD member countries.

                    Using M to M technique is also compatible with Thai Accounting Standard (TAS) No. 42. The TAS is the audit and accounting guide for audits of investment company stating that the fund assets managed by investment company must be marked to market.

                    At this moment, the fund committees are members should have a better understanding of what "Mark to Market" is as well as realize the need to use this technique in assessing the fund value in order to be fair to every member.

  Unitization

      Formerly, Member could see his/her net asset value in terms of total baht value. The number shown, however, could hardly provide any indicator of fund performance.

          To further develop the provident fund industry and to provide more benefit for members, the office of the Securities and Exchange Commission (SEC) initiated and enforced the principle of “unitization” in 2003. Provident fund must record and report member of his/her net asset value in terms of number of units and unit value. At the introduction stage, provident fund must firstly specify unit price at 10 baht and must set at least one trade date in a week to continually updated unit value.


 
Example:
          Monthly Contribution
                                              =          10,000.00 baht
          Unit Value
                                                                 =                 10.25 baht

          No. of units allocated to member account     =               975.61 units
 

  NAV Verifier  

              The NAV calculation made by management company under the concept of mark to market as specified by Association of Investment Management Companies shall be verified by NAV Verifier as to its correctness and in compliance with the rule. Since NAV is crucial in calculating provident fund units for employee who pay contribution to the fund, and the calculation of benefit paid to resigned members. Moreover,   NAV is used for calculation of composite return which indicates management company performance.

                      Click for list of NAV verifiers 


Main Page                                                                                                                                                               Last update : March 22, 2007

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