Impact of capstock on NAV

Impact to shares outstanding:

Subscription is an investment into the fund. The investor is purchasing Capstock Shares in the fund 
  •  Net shares outstanding increase.
Redemption is when the investor redeems their investment or sells back the Capstock Shares to the fund 
  • Net shares outstanding decrease.
Distribution is when the fund pays a dividend to the investors of the fund (the Capstock holders) 
  • This event has no impact on the number of shares.
Why is it important to have an accurate record of Capstock Shares?
Ans :It is used to calculate NAV per share
NAV per share = Total Net Assets /
Total CapStock Shares Outstanding
Let’s consider the impact caused by Capstock transactions to NAV per Share – how does a subscription, redemption or distribution affect price of the fund?
Remember that every Subscription increases TNA and number of Capstock Shares and every Redemption decreases TNA and number of Capstock Shares – these transactions change numerator as well as denominator in the formula. 
However, there are 2 exemptions from this rule; Backdated Capstock and rounding can affect NAV per Share.
1) Backdated Capstock means subscriptions or redemptions posted with NAV other than prior day (not all orders have been processed correctly on TD and some transactions have to be posted later than on TD + 1). Fund should be reimbursed for any losses resulting from such transactions by the party who caused the delay.
2) Rounding in the NAV per Share used by Transfer Agent may also cause insignificant impact- Transfer Agent usually uses NAV up top 2 decimal places, whereas system use 5 decimal places.

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