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What is NAV (Net Asset Value) in Mutual Funds?

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NAV (Net Asset Value) in Mutual Funds

Mutual funds are one of the most popular investment avenues. People invest their money in mutual funds for their ability to generate good returns.

Apart from return generation, mutual funds invest the money of investors with the assistance of fund managers who are highly qualified and experienced.

Therefore, mutual funds have many benefits from an investor’s point of view. When you invest in the mutual funds, its Net Asset Value (NAV) keeps on changing. In this article, we will learn the concept of NAV in mutual funds.

Let us first understand the meaning of Net Asset Value.

NAV (Net Asset Value) in Mutual Funds

Meaning of Net Asset Value

Net Asset Value is the value of the assets of a mutual fund scheme after deducting the value of liabilities per unit. NAV is the price for which you can buy a single unit of any mutual fund scheme.

It is also the price at which your units would be sold.

Like for example if a mutual fund has assets worth Rs. 500 crores and liabilities worth Rs. 100 crores than the total value would be Rs. 400 crores.

The NAV is derived by dividing the total fund value with the total number of outstanding units. If the outstanding units are 40 crores, the NAV of the mutual fund scheme would be Rs. 400 crores / 40 crores units i.e. Rs. 10 per unit.

Let us now learn how the valuation of stocks in done in the mutual funds that affect the NAV of the mutual fund scheme.

Valuation of Stocks in Mutual Funds

The prices of the stocks for trading in mutual funds is different from the price of the stocks that are listed on the stock exchange.

The company issues an infinite number of shares to the mutual funds during initial public offering (IPO) along with other additional offerings.

When they trade in the stock market, the price of these shares is determined by the market forces through supply and demand.

Let us now learn how the NAV for mutual funds changes.

NAV for Mutual Funds

Like the prices of stocks keep changing in the stock market, the mutual funds NAV does not change in real time as they cannot be traded like stocks.

Based on the asset and liabilities, the mutual fund prices change at the end of the day. The assets of the mutual fund include total investment made by it, cash and cash equivalents, accrued income and receivables.

Whereas, the liabilities of a mutual fund include pending payments, money owed to the lending banks, different types of charges and fees that are associated with various entities.

Let us now learn about how the performance of mutual funds is assessed.

Measuring the Mutual Fund Performance

The investors can assess the performance of a mutual fund scheme on the basis of NAV differentials between two dates.

Like for example, one can compare the performance of the fund by comparing the NAV on 1st December 2018 to the NAV on 31st March 2019.

The difference of values between two dates will suggest how well or bad the mutual fund scheme has performed.

Investing in a mutual fund scheme should be done only after analysing and selecting the scheme as per your financial goals.

If you are a beginner in the market and want to invest in a mutual fund scheme, you can take the assistance of Kotak Securities.

The experts and professionals at Kotak Securities shall guide and advise you in making the investment in the mutual fund's schemes.

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