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Net Asset Value

(Net Asset Value)

Net Asset Value

Net Asset Value (NAV) is the market value of all securities held by the mutual fund scheme. You would find the performance of a mutual fund scheme denoted by NAV or the Net Asset Value.

You can calculate the NAV per unit of the mutual fund by dividing the market value of the securities of the mutual fund scheme by the total number of units of the mutual fund scheme on any specific date.

NAV, in simple terms, is the price you pay for the units of the mutual fund scheme. Generally, mutual fund units begin with a unit-cost of ₹10 and it rises as the fund’s assets under the management grow.

NAV Formula

Here is how to calculate NAV:

NAV = Fund Assets – Fund Liabilities

You have mutual funds launching NFOs or New Fund Offers at a fixed price of Rs 10. However, you must understand that a lower NAV doesn’t mean a cheaper mutual fund. You have the NAV formula as total assets minus total liabilities divided by the total number of outstanding units. Here’s the formula to obtain NAV of a fund:

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

The correct qualifying items should be included for the assets and liabilities of a fund.

Role of NAV in Fund Performance

A lot of investors think net asset value is similar to a stock price. This causes them to believe that a fund with a lower net asset value is cheaper and hence, a better investment. In truth, it is not an indicator of mutual fund performance. A lower value alone does not make a fund a better investment or vice versa. Hence, it should not be the only determining factor to choose a mutual fund.

NAV vs. Market Price

Many investors consider NAV to be the market price of securities. This is wrong. The NAV and the market price are two different concepts that have completely different implications. Here’s how-

  • NAV- depicts the per-unit market value of a diversified portfolio of assets. It is determined by the market value of each asset held by the portfolio as well as the number of securities that the fund has. NAV is affected by the liabilities that the fund has and its expenses and it is calculated daily by the fund manager.

  • Market price- The market price is used to denote the value of a single type of asset. It is influenced by the demand and supply of the asset and its market perceptions



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