The market or net worth of a mutual fund scheme is what we call NAV or Net Asset Value. The total price of a mutual fund depends on the market value per fund unit.

Find details in this article about its Concept, Significance, Calculation, Importance & more. Lets get Started & know everything about NAV.


About NAV or Net Asset Value

In simple words, NAV is basically a fund’s share market value. It is the amount at which the investors buy fund shares from a firm and sell them to another fund house.

Net Asset Value or NAVThe amount at which an investor buys funds is the bid price. The redemption price is the amount in which the investor sells those funds.

NAV denotes the value a fund can be bought or sold for. NAV is the total value of the mutual fund scheme.

As an investor, what you should do is concentrate on the performance of the scheme and the returns brought while investing in the mutual fund scheme.

The only time will investors receive a higher NAV is when either the particular mutual fund scheme has flourished really well or has been in the market for a very long time.

The odds of both are rare and the wait is too long. As a NAV is the total value of the mutual fund scheme, it does not determine or predict the future results of a mutual fund.

A NAV cannot anticipate the future of any scheme.


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    How to Calculate NAV?

    You have to pay the same amount for the unit of the mutual fund as the NAV. So, if the NAV is a specific amount, you have to pay the exact amount for a unit of that mutual fund.

    But on the contrary, if you invest a higher amount in a mutual fund, you will have 10 units of that particular mutual fund. The total cost of equity is the amount of the commission it possesses.

    Although, a mutual fund portfolio always comes with a daily value because there are price fluctuations that change as per the ups and downs in the market.

    Daily Net Asset Value Calculation

    Mutual Fund companies evaluate their portfolio when their stock market closes at 3:30 pm. We calculate the portfolio every single day.

    The prices that are based on the previous day are the prices that the market will start their next investment day with. We use a specific formula to calculate the net asset value.

    The fund house takes out all the remaining liabilities and expenses in order to evaluate this net asset value. The net assets of mutual funds come under securities and liquid cash.

    The balance in the bank account is added and the amount that is payable is deducted to calculate the NAV of the mutual fund. Daily expenses are also deducted to manage a fund.

    The daily cost per unit can be derived when asset value is divided by the number of units until then.


    Formula of Net Asset Value or NAV

    Here is the simple formula based on which NAV or Net Asset Value is getting calculated.

    NAV = (Total Assets – Total Liabilities) / Number of Outstanding Shares

    The formula has 3 elements – Fund Assets, Fund Liabilities & Number of Outstanding Units.


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    NAV based on Different Time

    As we discussed earlier, a mutual fund company calculates and displays its latest NAV on all investment days which puts it into a very rigid timeframe.

    This is the main reason because of which mutual funds have a strict time-limit for their day-to-day investments that is 2 pm, although for liquid funds it is 3 pm.

    Your timing of submitting your application and funds determines whether you will be allotted the net asset value of the same day, the previous day, or the next day.

    Let’s make this clearer, if you are investing before 2 pm, you will be allotted the net asset value of the previous day. Although, this will only happen if you transfer the money before the deadline.

    Let’s say you submit your application, invest, or transfer money after 2 pm. In this case, you will have the NAV on the same day.

    In cases of equity and other debts, the deadline is always 3 pm. The same logic applies here with a bit of change, submitting the application before 3 pm will get you the same day’s NAV.

    Just in case you submit the application after the deadline, you will be allotted the next day’s NAV.

    Although, unlike liquid funds, there is no obligation to transfer the funds before the deadline.


    Importance of NAV with Respect to Mutual Funds

    The Net Asset Value cannot discuss or reveal the performance of the company. We can check the ratios with the same.

    Not just that, another misconception that exists is that the higher NAV mutual funds have maxed out their potential.

    It is not true as the performance of the fund matters and not the net asset value of the mutual fund.

    When planning to invest in a mutual fund, the NAV of that mutual fund should not be an aspect to be considered.

    One can also mistake the Net Asset Value for the Stock price. Mutual fund NAV cannot and does not specify the performance of the mutual fund, but the stock price does.


    Difference between Net Asset Value and Stock Price

    A stock price will reflect an actual sale or even a trade of shares. On the other hand, net asset value is worth of one share in a mutual fund.

    An investor will buy a mutual fund share at the previous day’s net asset value.

    While mutual funds are generally bought by total price and not per share, stocks are always bought by the number of shares. Stock Prices are purely supply and demand.

    The price of a stock will go up when many investors want a stock. The parties can still negotiate the trades. The value of a stock depends solely on supply and demand.

    A mutual fund’s value is fixed by the investment and the cost to run it.

    The NAV is dependent on the stocks because the NAV pricing for the share trading in a mutual fund differs remarkably from the common stocks or equities, which are in turn, issued by companies and listed on the stock exchange.


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    Common Factor between Net Asset Value & Share Price

    The one thing that’s common between Net Asset Value and Share Price is that both their values can drop.

    The net asset value of a mutual fund scheme can drop depending on the value of the assets.

    Basically, what this means is that mutual funds invest in different kinds of investment types like companies, bonds, or more.

    The value of these types is not constant, they keep on fluctuating from time to time.

    Hence, if the value of the assets of a mutual fund drops, meaning it is lower than the previous day, the net asset value will also drop.

    Although, an investor should always keep in mind that the NAV is always varying. It is always moving up and down no matter how good a mutual fund scheme is.

    The drop in the net asset value should not be a reason to sell the mutual fund. Selling a mutual fund has a lot more aspects that should be considered before deciding on selling it.


    Conclusion – NAV or Net Asset Value

    You should be well aware of the NAV applicability rules. It is to know the net asset value that will be applied for the transaction.

    NAV applicability is dependent on the type of fund and time of transaction. Always be certain that you consider these aspects before investing in a mutual fund.


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