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What Is NAV In Mutual Funds?

IndianMoney.com Research Team | Posted On Monday, February 25,2019, 12:34 PM

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What Is NAV In Mutual Funds?

 

 

The performance of mutual fund schemes are measured by Net Asset Value or NAV. Net Asset Value is the market value of all securities of a mutual fund scheme. Market value of the securities in a mutual fund scheme changes each day. This means NAV varies on a day to day basis.

You can measure the NAV of a mutual fund scheme with a simple formula:

NAV = Market value of all securities of a mutual fund scheme / Total number of units of mutual fund scheme on a particular date.

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What Is NAV In Mutual Funds?

History of NAV in mutual funds:

If you are a mutual fund investor, checking past NAVs also called historical NAV is very important. This gives an idea of the past performance of your mutual fund scheme. You can download NAV history of a mutual fund scheme from AMFI website.

NAV Formula:

Net Asset Value (NAV) = Assets – Debts / Number of Outstanding Units.

Assets of a mutual fund are mainly securities and liquid cash. Securities include equity like equity shares and debt like bonds, debentures, commercial paper depending on the type of mutual fund scheme. Accrued interest and dividends are all assets of a mutual fund scheme.

Money owed for outstanding liabilities and expenses are debts of the mutual fund scheme.

NAV is the price at which a single unit of a mutual fund scheme is traded. The sum total of all assets like shares, bonds, CPs, cash and so on are assets under management (AUM) of mutual funds.

Role of NAV in fund performance:

Many investors believe that NAV of a mutual fund scheme is the same as stock price. This entices investors to invest in mutual fund schemes of lower NAV. NAV of a mutual fund is not the only factor in determining if mutual fund is a good investment.

Let us understand role of NAV in fund performance with an example:
 

Fund Name

NAV

Launch Date

AUM (Crores)

1 Year Returns

3 Year Returns

5 Year Returns

ICICI Pru Focused Bluechip Fund (G)

39.45

May 23rd 2008

19863

0.2%

15.3%

14.6%

Reliance Large Cap Fund - Direct (G)

34.23

January 1st  2013

11793.87

2.00%

17.60%

18.10%

SEE ALSO:  NAV In Mutual FundsNAV doesn’t have much of a bearing on mutual fund selection. You get an understanding on how the underlying securities (assets under management) of the mutual fund have performed.

How Does NAV Get Affected?

A mutual fund gives NAV on all working days. This puts it in a strictly time bound regime. The deadline of daily mutual fund investments is 2 PM. If you invest before 2 PM, you are allowed mutual fund units of that day’s NAV. If you invest after 2 PM, you are allowed mutual fund units of the next business day. This is same for redemption. This is for liquid funds. Its 3 PM for equity and debt funds.

SEBI has mandated that mutual funds update NAV by 9 PM. Most mutual funds update at different times, but all of them before 9 PM.

NAV mutual funds with an example:

Let’s say AUM of a mutual fund is Rs 8,000 Crores. The total number of units is 200 Crores.

NAV = 8000 Crores / 200 Crores = Rs 40.

Is NAV Relevant in Mutual Funds?

You observe two mutual funds and one of them has an NAV of 15 and the other, an NAV of 25.  Don’t look at just the NAV. Also take a look at AUM, past performance, alpha, beta and so on.

How Sensex and Nifty affect Mutual Fund NAV?

BSE Sensex is a free-float market-weighted stock market index of 30 of the biggest companies listed on Bombay Stock Exchange (BSE).

CNX Nifty is a free-float market-weighted stock market index of 50 of the biggest companies listed on National Stock Exchange (NSE).

The NAV of large-cap mutual funds invests in big Companies in India and are affected by changes in BSE Sensex and CNX Nifty.

SEE ALSOIs NAV Relevant in Mutual Funds?

How to Invest in Mutual Funds?

  • Understand the purpose of investment:

The purpose of investment in mutual funds could be buying a house, car, retirement or child’s education. Assess risk level before investing (equity funds have more risk compared to debt funds) and invest based on risk profile.

Keep documents ready:

Be KYC complaint. Keep documents like address proof, photograph, birth certificate and PAN Card ready.

Select the scheme:

Choose between liquid, equity, debt or hybrid schemes. Decide between growth and dividend option. Choose strategy like SIP, Lumpsum or SWP.

Offline vs Online:

Invest with the help of a mutual fund distributor. He will help with the formalities in mutual fund investment. You can invest online in mutual funds. Invest directly through mutual fund website. You can use mutual fund mobile apps and mutual fund broking firms to invest in mutual funds.

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