Investing in mutual funds is a well-known way to grow your wealth and earn regular returns. A key element in managing these investments is understanding the NAV, or Net Asset Value, of your fund. What is NAV in Mutual Funds?
NAV value helps you decide the right time to buy, hold, or sell your mutual fund units. It also helps you align your investment strategy with current market trends.
What’s NAV, or net asset value, exactly, and what is the net asset value formula?
Let’s explore!
What is Net Asset Value (NAV)?
Net Asset Value is the per-unit price of a mutual fund. It’s calculated by dividing the total value of the fund’s assets minus its liabilities by the number of outstanding units. NAV represents the value of each share in the mutual fund and is updated daily based on the fund’s total assets and liabilities.
In short, NAV tells you how much each share or unit of the mutual fund is worth at the end of each trading day.
Since the market value of investments changes daily, the NAV also changes every day. You can find the NAV of mutual fund schemes on the mutual funds’ websites and AMFI’s website every day.
Unlike stocks, whose prices change every minute due to the stock market, NAVs of mutual fund schemes are updated only once at the end of each trading day after the market closes, as per SEBI Mutual Fund Regulations.
Invest in Mutual Funds with Zero Brokerage! Explore over 3,000 direct mutual funds today.
The units of mutual fund schemes (except for Liquid & Overnight funds) are given based on the NAV that will be declared at the end of the day, according to the closing market value of the investments in the fund.
A mutual fund might accept applications after the cut-off time, but you will receive the NAV for the next business day. The cut-off time rules also apply when redeeming units.
Why is NAV in Mutual Funds Important?
NAV helps you understand how much each unit of the mutual fund is worth at a given time. It is a crucial metric for mutual fund investors for several reasons:
- NAV reflects the fund’s current market value. It helps investors track their investments’ performance over time. By comparing NAV at different points, investors can see how well the fund is doing.
- NAV value shows the fair value of the mutual fund’s holdings per share on a given date. This helps investors understand the intrinsic value of their investments.
- By comparing the NAV of mutual fund with the market price, you can easily understand if the fund is overvalued or undervalued.
- NAV allows investors to compare different mutual funds. By looking at NAV alongside other factors like past performance, expense ratios, and fund manager strategies, investors can choose the best fund for their needs.
- For open-end mutual funds, NAV is typically declared daily. This provides a regular update on the fund’s value.
In summary, NAV is a comprehensive indicator of a mutual fund’s health and performance.
NAV Calculation
To calculate the NAV, you can use the below-mentioned formula:
NAV= Total Value of Assets−Total Liabilities/ Total Number of Outstanding Units
- Total Value of Assets: This is the combined value of all investments owned by the mutual fund. It includes stocks, bonds, and other securities.
- Total Liabilities: These are the fund’s debts or obligations, such as management fees or expenses.
- Total Number of Outstanding Units: This refers to the total number of units or shares that investors hold in the mutual fund.
Example of NAV Calculation
Let’s say a mutual fund has the following details:
- Total Value of Assets: ₹1,000,000
- Total Liabilities: ₹100,000
- Total Number of Outstanding Units: 50,000
First, calculate the Net Assets:
Net Assets= Total Value of Assets−Total Liabilities Net Assets= ₹1,000,000−₹100,000=₹900,000
Now, calculate the NAV:
NAV Formula = Net Assets/ Total Number of Outstanding Units
900000/ 50000
NAV= ₹18
So, the NAV of the mutual fund is ₹18 per unit.
How to Use Net Asset Value in Mutual Funds
When you buy units of a mutual fund, you pay the NAV price per unit. When you sell, you receive the NAV price per unit at that time. This means the price you pay or receive is based on the current NAV.
Most of the investors often use NAV to track the performance of a mutual fund.
A rising NAV indicates that the value of the fund’s assets is increasing, which generally means good performance.
On the other hand, a falling NAV might suggest poor performance.
How is the Applicable NAV Calculated?
Here’s how the Applicable NAV is calculated for different scenarios:
| Type of Scheme | Time of Application | Funds Available | NAV Applied |
| Liquid Funds/Overnight Funds | Up to 1:30 p.m. | Before 1:30 p.m. without credit facility | Closing NAV of the day before the application received |
| After 1:30 p.m. | On the same day without credit facility | Closing NAV of the day before the next business day | |
| Any time | Not available before 1:30 p.m. | Closing NAV of the day before funds are available | |
| Redemption | Up to 3:00 p.m. | – | Closing NAV of the day before the next business day |
| After 3:00 p.m. | – | Closing NAV of the next business day | |
| All Other Schemes | Up to 3:00 p.m. | Available before 3:00 p.m. | Closing NAV of the day on which the application was received |
| After 3:00 p.m. | Available | Closing NAV of the next business day | |
| Any time | Not available before 3:00 p.m. | Closing NAV of the day when funds become available | |
| Redemption | Up to 3:00 p.m. | – | Closing NAV of the day on which the application was received |
| After 3:00 p.m. | – | Closing NAV of the next business day |
Liquid Funds/Overnight Funds
Here are the details of the subscription:
- Applications Received Up to 1:30 p.m.
If the application is received by 1:30 p.m. and the funds are available for use before 1:30 p.m. without using any credit facility, you will get the closing NAV of the day before the application was received.
- Applications Received After 1:30 p.m.
If the application is received after 1:30 p.m. and the funds are available for use on the same day without using any credit facility, you will get the closing NAV of the day before the next business day.
- Funds Not Available Before 1:30 p.m.
If the application is received (whether before or after 1:30 p.m.) and the funds are not available for use before 1:30 p.m. without using any credit facility, you will get the closing NAV of the day before the day when the funds become available for use.
Redemption:
- Applications Received Up to 3:00 p.m.: If the application is received by 3:00 p.m., you will get the closing NAV of the day before the next business day.
- Applications Received After 3:00 p.m.: If the application is received after 3:00 p.m., you will get the closing NAV of the next business day.
All Other Schemes
Here are the details of the subscription:
- Applications Received Up to 3:00 p.m.:
If the application is received by 3:00 p.m. and the funds are available for use before 3:00 p.m., you will get the closing NAV of the day on which the application was received.
- Applications Received After 3:00 p.m.:
If the application is received after 3:00 p.m. and the funds are available for use, you will get the closing NAV of the next business day.
- Funds Not Available Before 3:00 p.m.:
If the application is received (whether before or after 3:00 p.m.) and the funds are not available for use before 3:00 p.m., you will get the closing NAV of the day when the funds become available for use before the cut-off time of 3:00 p.m.
Redemption:
- Applications Received Up to 3:00 p.m.: If the application is received by 3:00 p.m., you will get the closing NAV of the day on which the application was received.
- Applications Received After 3:00 p.m.: If the application is received after 3:00 p.m., you will get the closing NAV of the next business day.
What is the Impact of NAV on Fund Performance?
Until now, we read that NAV in Mutual Funds shows the daily performance level after the closing hours. So now, let’s see how it is relevant to investors’ decision-making and whether the lower NAV in Mutual Funds is good or bad.
If the value of NAV is lesser, then it should not be interpreted as a cheaper investment option because NAV alone is not an indicator of the performance of funds, as it shows just the past performances. So, when making a decision, consider other factors that affect investments.
Conclusion
The NAV(Net Asset Value) in a Mutual Fund fund is helpful in determining how the fund performs consistently. Before investing, you must consider the fund’s current cost and historical performance, among other factors. Once you’re familiar with these factors, you can start investing with a free demat account.
FAQs| What is NAV in Mutual Funds
The Net Asset Value (NAV) of mutual funds is the per-unit price of the fund. It represents the value of each share or unit of the mutual fund.
NAV, or Net Asset Value, in mutual funds represents the value per share of the fund. It is updated daily based on the fund’s total assets and liabilities. NAV value shows you how much each share is worth at the end of each trading day.
A higher or lower NAV doesn’t necessarily mean a fund is better or worse. It’s just the price per unit. What really matters is how the fund performs and grows over time.
NAV tells you the value of each share in a mutual fund. It’s calculated by deducting the fund’s liabilities from its assets and dividing by the number of shares.
When NAV goes up, it usually means the fund is doing well. This often leads to higher profits for investors as the value of the fund’s assets grows.
A good NAV for a mutual fund isn’t about a specific number. It should rather aligns with your investment goals and strategy. You must look for an NAV that matches your risk tolerance.
______________________________________________________________________________________
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.