ETF Unit Allocation...

I am curious as to how to fund houses allocate units to investors in an NFO.

Take the case of the recent Kotak Nifty ETF. It has a NFO price of 10/-, and upon listing the NAV will be approx. (1/10) of Nifty price that day.

So does that mean if I invest 10,000 I would get 1000 units (as the face value is 10/-)? If not, then whats the significance of that 10/- NFO price when it is not utilized?????



Well-Known Member
Ujjwal, face value is more for accounting purpose. In future, when dividend etc is declared, then it will be on the basis of face value.

When they are allocating units, they will take the cut-off date eg. 4-Jan-10.. and come out with the NAV based on NIFTY value on that date. If it NIFTY was at 5250 then NAV = 525.

So number of units that u will get will be 10k/525 = 19.5
Tomorrow, when NIFTY is at 5100, the unit value will be 510 giving value of your investment = 510*19.5 = 9945.

It is almost like shares where company can give u a share in IPO at 120 Rs which has got face value of 10. And on listing, the trading happens at the price aroun 120 Rs.
When company give 50% bonus, they give it on face value i.e 5 Rs. per share. So even if u have paid 120 Rs for 1 share, u will get only 5 Rs as dividend.
Company can also decide to split their share from 10 rs face value to 2 rs face value. In that case you will extra shares in your acct but the price will come down to 1/5th.

If you want to know more about this then you will have to read on company accounts/books etc. Else keep it simple and assume that Face Value means nothing in real trading. More important is NAV or last traded price.

Hope this helps.
Happy Trading

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