Everything About Mutual Fund NAV

What is NAV?

NAV is net asset value of a fund, according to which AMC and investors both keep count of number of units investors holds.

Net asset value denotes the price of each unit of a mutual fund.

What is Mutual fund NAV?

In mutual funds, as we don’t get ownership of any investment done in any security, we invest in a portfolio; we don’t have any rights in the company in terms of voting, right issues, dividend, bonus etc. The units in a mutual fund are bought and sold by a fund manager, and being an investor we invest in the portfolio designed by these fund managers.

As portfolio is a group of securities (can be equity, debt or hybrid) we get units against the money we invest. Every unit will have value in terms of NAV.

When an investor purchases or invest in mutual fund, units are allotted to him based on the current NAV or Net asset value, same is applicable to the time of redeeming the units.NAV works same as the price of any other product, commodity or investment.

The difference between purchase rate of NAV and redemption rate of NAV defines profit or loss of the investor. If the purchase rate is more than redemption rate, the investor will be in profit and if the later is less, the investor will incur losses.

How NAV works?

Mutual fund NAV doesn’t fluctuates as price of shares do every movement, it is calculated once every day after the end of market hours and complete depends of movement of share price included in the portfolio during the day.

Depending upon the weightage allotted to each share, NAV will movement will also depend. If the highest allocation towards any share is more than 25% allocation and the share price moves in either direction during market hours, it will have similar kind of impact on the NAV for that day too.

NAV of a new fund offer starts with 10, unlike share IPO, all mutual fund NFOs starts the race at the same initial point and depending on the performance of the fund manager and the strategies used by him accompanied by favorable market situation will define the increase in NAV.

Usually the cut off time for getting the same days NAV is between 2PM to 3 PM, if any one places order to buy or sell post this will get the next day’s NAV which can be higher or lower as compared to previous day.

NAV of a fund also includes charges like fund management fee and if the investors purchase it via distributor, it even included their commissions too which we call as expense ratio. Exit load is also charged as a percentage of NAV

NAV of a regular fund is greater than NAV of a direct fund, because it’s directly provided by AMC.

How NAV works in mutual funds in ETFs and closed ended funds?

As ETFs and closed ended funds both are listed on the market post closure of the subscription period, they are traded like stocks and shares, value of ETFs and closed ended funds can be at discount or at premium. The NAV of these are even calculated in intraday basis.

Myth about NAV.

Investors usually think that if they invest in a fund with lesser NAV for example during NFO period, the chances of growing their money is much higher than investing in a fund which has already grown over few years.

For example, if you invest in NFO you get units allotted at NAV 10 where as if you invest in a fund which was launched 3 years ago but has NAV as 45, you will earn more profit by investing in the NFO, which is not true.

When it comes to comparing the performance of 2 funds, NAV is irrelevant. The chances of growing your money completely depend on the market situation, fund manager’s performance and strategies and quality of securities in the portfolio.

Not let’s compare 2 funds and their NAV

Scheme Name

In the about illustration, it very clears that, even though NAV of Axis focused Is less than NAV Sundaram select focus, however the returns generated by the Axis Focused 25 fund is higher than . This clearly shows that performance of the fund is not dependent on NAV but the performance of the securities involved in the portfolio.

NAV is not only a representative of value of a mutual fund, however it a combination of various other costs too. NAV includes management fee, expenses ratio, distribution fee, fee of the fund manager. It is the per unit cost which the investor pays at the time of purchasing units and gets the money based on it at the time of redeeming the mutual funds.

NAV represents market value of the fund post deduction of liabilities. There are few important points which have to be looked into before getting into NAV calculation.

• Fund’s net asset value- NAV of the fund (assets held minus debt)

Assets include securities like bonds, shares, stock and cash held by in the mutual fund portfolio. The value of all the securities is taken at the market value. Dividend and accrued interests also form a part of assets.

• Debts = Liabilities + Expenses (accrued)
• Number of outstanding shares