NAV (Net Asset Value) in Mutual Fund

Net asset value in mutual funds denotes the per-share value of any particular mutual fund scheme. Once you start your journey in the financial avenue, understanding mutual funds and NAV becomes essential.

Knowing the meaning of NAV in mutual funds is critical as it shows how much earning potential you have by investing in it. By calculating the NAV of a mutual fund you can understand its performance history. This will help you to make better decisions while investing.

What is NAV in Mutual Funds

NAV in mutual funds stands for Net Asset Value. It represents the fund’s per-unit market value. The bid price is calculated based on the performance of the mutual fund.

To calculate the NAV of a mutual fund, you need to divide the total value of all securities and cash by the number of outstanding shares. Any liability may hurt the fund’s portfolio to get the desired results of the net asset value.

Here are a few aspects that you must know about NAV:

• NAV is calculated after the market closes
• Fund houses declare the NAV for open ended funds each day
• The NAV for close-ended funds is calculated every week or month

Net Asset Value (NAV) Formula

Here’s the formula to calculate your net asset value in mutual funds.

Net Value of an Asset = (Asset – Liabilities)/ Outstanding Shares

The MF NAV calculation process includes two aspects: assets and liabilities.

• Assets are the value of all the assets under the scheme as well as the cash holding
• Liabilities refer to payable interest/ money or any other liability as well as the expense ratio

Know that you know how is the NAV calculated, keep in mind that it is more important to know how it changes and grows over time rather than focusing on its value. Growth in NAV shows the scheme’s performance and increase in assets. 

How To Determine the Net Value of an Asset

There are two ways to determine the net of an asset. These calculating methods are:

• Daily Net Valuation of Assets

This is a generic valuation method as every day, when the market closes, fund houses share the total worth of bonds, stocks and commodities. The next day, when the market reopens, the scheme valuation remains the same as it did the day before.

• General Calculation

This shares the value per the equity share by the cumulative cost of individual shares. This calculation shows the actual market value of the investment. The calculated price may vary as per the fluctuations of the market.

Why is NAV in Mutual Funds Important for Investors?

This figure helps you make a decision about investing and redeeming units in a mutual fund scheme. Here’s how:

• Valuation – You can gauge your decision to invest in a fund based on its performance and growth by checking the NAV over time. Growth indicates that the assets managed by the scheme have increased and more investors trust in it, too. 
• Making a Decision – The NAV can dictate your next move – whether to buy a unit or sell it off. You can calculate exactly how much you can get by redeeming your investment. 

When you embark on a journey to grow your wealth via mutual funds, learning how to calculate net asset value will help. While such investments are subject to risks, making an informed decision will help you mitigate them. 

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FAQs on NAV in Mutual Funds

Can the NAV of a mutual fund go negative?

The NAV of mutual funds can go up and down based on market volatility. But, it will never have a negative value. Follow the formula, Net Value of an Asset = (Asset – Liabilities)/ Outstanding Shares.

How can I check the NAV of a mutual fund?

You have two simple options to check the NAV in mutual funds. 

• Option 1: Go to any AMC website and check the NAV
• Option 2: Visit the Association of Mutual Funds of India (AMFI) NAV history page

Is NAV the only factor to consider when investing in mutual funds?

NAV should not be the only deciding factor in choosing a mutual fund scheme. Instead, look at the MF NAV calculation as one parameter among others such as:

• Your risk appetite and the type of fund 
• Your financial objectives 
• Expense ratio 
• Early withdrawal exit load 
• Comparison of returns among funds of the same kind
• Quality and experience of fund managers 

Can NAV be used to predict the future performance of a mutual fund?

When it comes to mutual funds and NAV, one cannot rely only on one figure to predict future performance. Check the changes in NAV over time and the historical performance of other funds in the same category to take an informed decision. Keep in mind that the market can be volatile and unpredictable. 

How is the NAV calculated?

NAV is calculated this way: (Asset – Liabilities)/ Total Shares