Hello Readers! 

Investment going well or not! 

Well, Mutual Fund, is a big term that, includes many interesting terms like CAGR (Compounded Annual Growth Rate), SIP (Systematic Investment Plan), NAV (Net Asset Value) and many more.  Each of these terms holds specific importance, in mutual fund investments.

It is important for a mutual fund investor, to be aware of the importance and significance of these terms. Through our blogs, we have discussed some of the terms like SIP and CAGR, before.

Today, we are going to explain the concept of one more interesting term in mutual funds and that is Net Asset Value or if abbreviated NAV. Read this blog and know everything about the Mutual Fund NAV or Net Asset Value.

What Is NAV or Net Asset Value? 

NAV or Net Asset Value can simply be said as the market value of the mutual fund unit, or the price at which the investor buys the unit of a mutual fund scheme. It may also be the price at which an investor would sell their unit. The overall cost or price of a mutual fund scheme is calculated based on this market value per fund unit.

Mutual fund units begin with a unit-cost of ₹10 and rise with the growth of the fund’s assets under the AMC (Asset Management Company). Hence it is said in the mutual fund industry, the older and popular the mutual fund scheme, the higher its NAV will be. The less popular mutual fund scheme will have a lower NAV.

How NAV is Important to Investors?  

It is advised to investors, to have a check over the Net Asset Value or NAV of a fund before investing your money in that specific fund, along with that it is always said to them, not to decide their investment by taking NAV of the fund as the parameter. NAV of any fund only decide the value at which the unit should be purchased, it doesn’t decide the performance of the mutual fund scheme or does not reflect the future prospects of the mutual fund scheme.

Higher NAV of schemes shows, how the scheme investments have prospered really well, or the scheme has been around for a long period. Its good to look over the NAV of the fund, but investors should focus on the scheme’s performance and the returns generated, before starting their investment.

How Is NAV Calculated? 

NAV or Net Asset Value of mutual funds is calculated on a daily basis.

Daily NAV Calculation: When the stock market closes at 3:30 PM, all the mutual fund houses or companies estimate their portfolio, on a daily basis. The market opens again the next day with the previous day’s closing share prices.

NAV of a mutual fund scheme is calculated using the formula:

Net Asset Value = [Assets–(Liabilities+Expenses)]/Number of outstanding units.

The fund house deducts all the outstanding liabilities and expenses accordingly to calculate net asset value (NAV) of the day. Assets of a mutual fund comprised of two parts,

1.Securities: It includes both the equity, debentures, bonds and commercial papers.

2.Liquid cash: Interest accrued, and dividends are also part of the assets.

The Net Asset Value is calculated, after excluding the money payable to others in the form of dividends, and daily expenses to manage a fund (Total Expense Ratio or TER).

Net Asset Value Calculation: Suppose if any mutual fund scheme’s NAV is Rs 200, then the investor will have to pay Rs 200, for one unit of that mutual fund scheme. If the investor has invested Rs 1000 in that specific mutual fund scheme, then he will probably be getting five units of that fund.  

Relation Between NAV and Investment-Timing 

Mutual funds keep a deadline for daily investments which is 2 p.m. for liquid funds or 3 p.m. for equity or debt funds. Similarly, Mutual Fund house releases its latest NAV on all working days. As per the time at which you submit your application, you are allotted with the units of the fund as per the NAV of the same day, the previous day or the next day. Like for example, if you invest in a liquid fund before 2 PM and also transfer the money before the deadline, you will be allotted the units of the fund as per the NAV of the previous day. If you miss to transfer the fund before the deadline and submit your application and money after 2 p.m., you will be allotted units at the NAV of the same day.

In the case of equity and other debt funds, the deadline is 3 p.m. If you submit the application before 3 p.m., you will get the unit on the basis of the same day’s NAV. Submitting the application after the deadline will get you the next day’s NAV. Well, in equity the transfer of funds before the deadline, doesn’t matters much.

Role of NAV in Funds Performance

Many investors do think that a fund with a lower net asset value is cheaper and hence, a better investment, which is absolutely not true. The fact is NAV is not an indicator of mutual fund performance. A lower NAV value is choosing mostly, to buy more units in less price, but considering a fund as the best investment, only because it has lower NAV is not right. Hence, it should not be the only determining factor to choose a mutual fund, rather investor should look at other factors like fund’s past performance, fund’s TER, fund manager, managing the fund and many more, although don’t forget to check the NAV of the fund, before investing.

As of now, you must have understood the concept of NAV in Mutual Funds, so plan your investment today, and don’t forget to check the NAV of the fund.

Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best fund, for your investments as per your requirement.

You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).