Scheme NAV falls when fund declares Bonus units

I parked a large sum in Principal Cash Management fund(G) since October 2012. The fund NAV crashed on March 24 causing a huge loss. This being a liquid fund I am unable to digest this. Can you throw some light on this crash. -R Shekhar

The NAV of Principal cash Management Fund crashed because the fund declared a bonus of three units for every five units held under the growth option of direct plan and regular plan. The AMC had issued a notice regarding the same on March 15.
A bonus issue is a way of distributing profits earned by the fund. On the day a bonus is declared the NAV falls in proportion to the bonus declaration. So if you held five units in this fund as on March 22, at NAV 1820.385, your assets were worth Rs 9101.926. After you received three bonus units, the NAV fell to Rs 1138.314, while your eight units were still worth Rs 9106.516.

This article was originally published on April 17, 2013.