What is NAV in mutual fund? Often people give a lot of attention to NAV in mutual fund India. But it is worth it? Or should you give so much importance to it. Let’s explore about the mutual fund purchase price per unit.
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What is NAV in Mutual Fund?
NAV stands for Net Asset Value. The mutual fund scheme performance is denoted by its NAV/Net Asset Value per unit.
Basically NAV per unit is the market value ( Price) of one unit of mutual fund scheme.
NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on a given date.
For example, if the market value of securities of a mutual fund scheme is ₹600 lakh and that particular mutual fund scheme has issued 20 lakh units of ₹ 10 each ( initial offer price) to the investors, then the NAV per unit ( latest market price) of the fund is ₹ 30 (i.e., ₹600 lakh/20 lakh).
SIP Or Mutual Fund – What Is The Difference & Example
What is NAV in mutual fund with example?
Let’s understand with the example of Bestii Singh.
Suppose Bestii Singh went to market to buy soaps for Rs 1000 and soap price is Rs 100 each. Then he will be able to buy Rs 1000/ Rs 100 = 10 Soaps.
Now replace soap with mutual fund unit. Basically NAV is the purchase price of one unit of mutual fund.
Here, as per the above example Rs 100 is NAV of Mutual Fund scheme. Since Bestii invested Rs. 1000, So he will get 10 units of that particular mutual fund scheme.
( Disclaimer: there is no correlation between soap and Mutual fund unit. The above example is for understanding purpose only).
How NAV is calculated:
Mathematically, NAV Formula is represented as:
NAV = (Total Asset Value – Total Liabilities)/Total Number of Outstanding MF units
Where Total Asset Value is total value of mutual fund’s portfolio.
mutual fund’s portfolio is consist of various assets like stocks, bonds, or other securities.
- Assets – The value of these assets is determined daily, at the end of each trading day.
For stocks, it is the closing market price.
For bonds, it might involve a more complex calculation based on yields and market conditions.
2. Liabilities – The Mutual fund’s expenses and any other expenses are subtracted from the total value of the assets. These expenses may include management fees, administrative costs, and other fees incurred in managing the fund.
3. Outstanding MF units- The resulting value is divided by the total number of outstanding shares in the mutual fund. Thus the above calculation gives the NAV per MF unit.
Why NAV changes on daily basis?
Since mutual fund invest money in some securities and the market price/ Value of securities changes every day, therefore NAV of a scheme also varies on daily basis.
NAVs of mutual fund schemes are published on respective mutual funds’ websites as well as AMFI’s website daily.
Why Mutual Fund NAV does not fluctuate as stocks?
Contrary to stocks, wherein the price is determined by the stock market and fluctuates minute-to-minute, NAVs of mutual fund schemes are announced in accordance with SEBI Mutual Fund Regulations at the conclusion of each trading day after markets have closed.
When do mutual funds update NAV?
Mutual Fund NAV or NAV schemes under all scheme (except Liquid & Overnight funds) is allotted at the end of the day. NAV is based on the closing market value of the securities( all stocks or securities) held in the respective schemes.
A mutual fund may accept applications even after the cut-off time, but you will get the NAV of the next business day. Further, the cut-off time rules apply for redemptions too.
At what price you buy or sell ( Redeem) MF?
Investors can buy or redeem/sell mutual fund units at the NAV price.
At the time of buying Mutual Fund, you pay the NAV per unit.
Similarly you receive the NAV per unit at the time of redemption or selling.
What NAV will I get at the time of purchase or sell?
Whenever you buy of sell MF units, you will get net asset value (NAV) for that day’s closing because mutual funds are normally valued once each day after the market closes.
Suppose Bestii Singh transfer money in a mutual fund scheme on wednesday ( before 3 PM). Then Bestii will get units at the closing price of Tuesday evening.
But if Bestii transfer money after 3 PM, then he will get units at the closing price of wednesday evening.
( In case of Liquid/ overnight funds the cut off time is 1:30 PM.
Please note- cheque deposition date may/may not be your NAV date. The investor will be give NAV of day, when funds are realised.
Learn How to Exit /redeem /Sell Mutual Funds
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FAQ
Is higher NAV better or lower?
When you buy mutual fund, NAV is just the price of mutual fund unit. It does not matter at what price ( NAV) you purchase the MF scheme. Therefore, NAV in mutual fund should high or low is irrespective of return you get from a MF scheme.
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Please refer below table.
Thus higher or lower NAV, both are good.
When you buy at a low NAV, you get more number of units and if you buy at a high NAV, you get lesser number of units.
But mutual fund return depends on the growth rate, given by the fund.
For example
| Fund A | Fund B | |
| Investment | Rs 1000 | Rs 1000 |
| Unit Price ( NAV) | 100 | Rs. 10 |
| No of units alloted | Rs 1000/100= 10 units | Rs 1000/10 = 100 units |
| Growth after 1 year | 10% | 10% |
| NAV after 1 year | 100*(1+10%)=110 | 10*(1+10%)=11 |
| Redemption amount after 1 year | NAV* number of units110*10 units=Rs.1100 | NAV* number of units11*100 units=Rs.1100 |
Also Read : Top 5 Ways To Track Mutual Funds Investments
Should NAV be higher than share price?
A single Mutual fund scheme invest in multiple stocks/securities and therefore NAV of a mutual fund have no correlation with single share price.
Can NAV be less than 10?
Yes, NAV can be lesser than Rs 10 also. Usually mutual fund units initial NAV ( at the time of new fund offer/NFO) is Rs. 10. But in unfavourable market, the net asset value can decrease to below Rs 10.
What does it mean when NAV is 0?
The selling price of mutual fund is calculated by multiplying number of units with NAV.
The money value in a MF Scheme= number of units* NAV
If NAV is 0, the money value in a MF scheme will be zero only.
