Net Asset Value (NAV)- What is the Definition and How to Calculate in MF?

Net Asset Value (NAV)- What is the Definition and How to Calculate in MF?

Net Asset Value word is a very common word in MF (Mutual Fund) Account Statement.

If you are a Mutual Fund Investor, then You may have seen or heard about it more frequently.

In addition, NAV is the short form of Net Asset Value in the Mutual Fund Industry.

Do read these articles about What is a Mutual Fund. Click this link to read.

and also read the article What expense ratio in Mutual funds. Click this link to read.

And also read the article about types of debt mutual funds. Click this link to read.

What is the Definition of Net Asset Value?…

Net Assset Value
Net Asset Value

The net asset value (NAV) represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities.

I have copied the above definition from Investopedia.

In addition, this word most commonly used in the Mutual Fund Industry, and in Exchange Traded funds.

How to Understand NAV?

In the case of business entities, and companies the net difference between assets and liabilities is known as Net Assets or net worth of the company.

While at the same, theoretically, the financial product that follows the accounting concept of Assets and Liabilities can have “NAV”.

What is the formulae for it?

NAV = ( Assets – Liabilities)/ Total Out Standing shares or Units in case of mutual fund scheme).

In addition, the correct qualifying items should be added to assets and liabilities.

When it is Calculated for a Mutual Fund?…

The NAV of a mutual fund can not be calculated during market hours.

As the Price of the underlying stock or share trades in the market, and shares price will change every minute or second during the market is opened.

In addition, it will consider the closing prices of shares or stocks that the fund is holding.

So, it is calculated only when the market is closed and will be published daily in AMFI Website.

How NAV of a Mutual Fund is different from an Equity Share?…

When You are buying a Stock or share from the exchange, the stock price will depend not only depend on the fundamentals of the stock.

But also depend on the future earning expectation of that stock.

In addition, the demand and supply of the shares.

Hence, in stocks, the stock price may be above or below the book value of the share.

When it comes to mutual fund units, there is no concept of market value concept.

So, when are buying units of a mutual fund means that we are buying

How Important is Net Asset Value of MF is imp for the investors?…

When you are investing the same investment in different funds.

Then, the nav of the fund is not important for you.

In addition, You need to track the performance or the return of that fund or scheme.

What to when the nav is low or high in MF?

Let us understand this question with an example.

There are two funds called A and B, these two funds have given 10% return for 1 year.

In addition, The nav of fund A is Rs.10, for B is Rs.50, and you have invested the same amount Rs.10,000 in two funds.

Moreover, You got 10000 units in Fund A and in fund B you got 2000 units.

fund a and fund b performance at different nav
fund a and fund b performance at different nav

In the above image, you can find that the future value of Fund A and Fund B is the Same as the return of both the funds is similar in spite of NAV is different.

So, it is clear that the nav of a mutual fund scheme is not relevant for selecting a fund.

What it indicates the change in NAV daily in Mf?…

The change in NAV in the scheme or fund indicates the rise or dip of the assets in the fund.

But do not worry about this change of nav daily.

In addition,  Invest in Mutual funds goal-oriented.

If you are not able to manage the risks in the mutual funds, then hire a Sebi Registered Investment Adviser who will guide you in the right path with no or low conflict of interest.





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