Mutual Funds Beginner

What is net asset value (NAV)?

Net Asset Value or NAV

Net Asset Value (NAV) refers to an investment firm’s total assets minus its liabilities. Since assets and liabilities change daily, NAV also changes daily. Let us delve deeper to understand this crucial metric in the asset management industry.

Understanding net asset value (NAV)

NAVs help investors know the value of their investments. The term became popular as mutual funds emerged as investor favorites. Fund houses and investment trusts calculate their NAVs at the close of business hours every day. However, closed-end mutual funds need not comply with this requirement.

Investors can log on to the website/app of the asset management company, select the specific scheme they have invested in, and view the net asset value.

Definition and explanation of NAV

What is NAV? NAV stands for net asset value. The metric indicates the value of an investment by adding up assets and deducting liabilities. Mutual funds and ETFs use NAVs to understand the price per unit/share. For instance, if a company holds investments of $100 million with $10 million worth of liabilities. Then, NAV for the company will be equivalent to $90 million. The price per share will depend on the number of units distributed to shareholders.

How is NAV calculated?

NAV represents the per-share value of the fund. Fund houses calculate the net asset value by dividing the portfolio’s market value by the number of units/shares issued. In the Indian context, market regulator SEBI has mandated that mutual fund companies publish their NAVs by 9 p.m. every day.

The importance of NAV in mutual funds

Once you are an investor in mutual funds, NAVs help you keep track of your portfolio on a daily basis. For instance, if the NAV is very high on a particular day compared to when you began investing in the fund, you can think of redeeming some funds. Likewise, a lower net asset value can signal you to invest a lumpsum in the fund to reap the rewards later. But as a potential investor, one can safely ignore the metric. In fact, one should focus on other parameters, such as the fund’s AUM size, past performance, etc, to make an informed decision.

NAV and mutual fund pricing

We have seen that the net asset value helps investors understand how their fund portfolio performs. But they also play a vital role in determining a mutual fund’s purchase price.

How is NAV used to price mutual fund shares?

Mutual fund NAV gives you the intrinsic value of the fund portfolio on a particular day. If you purchase units of a mutual fund, you will pay the previous day’s NAV. In other words, this indicator determines buying and selling prices when transacting in a mutual fund.

Differences between NAV and market price

Mutual funds work differently from stocks and ETFs, where you immediately know the price you buy or sell. In a mutual fund, you will know the buy/sell price later in the day or the following day, unlike in an ETF.

NAV represents the value of every share in terms of assets and cash. The values change every day, and values will be ascertained at the end of the trading day. The market price indicates the prices at which the funds will be purchased or redeemed within official trading hours. The main difference between this metric and the market price is that the latter reflects supply and demand forces.

The impact of NAV on mutual fund performance

NAV refers to the worth of your mutual fund in per-unit terms. It depends on many factors, such as the market performance and the performance of the stocks that comprise the portfolio. In other words, the metric’s value should not be a factor in determining the performance of a mutual fund.

Mutual fund NAVs don’t change according to demand, unlike stocks. Investors need to understand this distinction. The metric helps investors evaluate their portfolios but is not a helpful indicator in deciding whether to invest in a mutual fund scheme.

NAV and mutual fund performance

How NAV reflects mutual fund performance

Mutual fund investors rely on NAVs to understand how their portfolio is performing. If the net asset value of a scheme has increased, it indicates a favorable condition for investors. When a dividend is paid to a shareholder, the value of the widely watched indicator will decline as it impacts the fund’s total value.

The role of NAV in evaluating mutual fund risk and return

Since NAV is not equivalent to share price, the fund’s demand and supply will not impact it. The role of net asset value in mutual funds is to track the fund’s performance.

How NAV changes with mutual fund performance

The changes in underlying assets/securities impact the net asset value in mutual funds. Besides, the expense ratios of the fund will impact mutual fund performance. A high expense ratio will lower the net asset value, while a low expense tends to boost the metric. Besides, when paying dividends, the overall reading will also decline.

NAV and investment decisions

Most of us check the price of a product when we want to buy something. Likewise, potential investors look at the net asset value to gauge a mutual fund scheme’s performance. However, this is a mistake, as many tend to equate net asset value to the stock price.

How is NAV used to make investment decisions?

True, net asset value is a useful metric to evaluate an investor portfolio. However, it is not very useful in deciding if a fund scheme is a good investment choice. For instance, a lower net asset value does not necessarily indicate that a scheme is worth investing in.

How NAV affects mutual fund liquidity

NAV impacts assets held by mutual funds. The liquidity of the mutual funds means maximum flexibility in selling and purchasing funds at any time.

The role of NAV in mutual fund research and analysis

NAV helps investors understand the worth of fund units. Besides, it is mainly used to purchase and redeem mutual fund units, not to evaluate a fund’s investment potential. However, the metric does help investors track the fund’s performance over specific periods by reviewing the changes in the metric.

The impact of NAV on mutual fund redemption and switching

Unlike in shares, the price of a mutual fund unit is not readily known when you decide to buy or sell units. Net asset value is usually declared late in the evening after the close of market hours. Of course, a higher reading works in your favor while selling units, while a lower reading will enable you to buy more units at lower prices.


What is the NAV net assets value?

Net Asset Value (NAV) in mutual funds represents the per-unit market value of the fund’s assets minus liabilities. It’s crucial for investors as it reflects the fund’s current worth per share.

What is the difference between net asset value and NAV?

Net Asset Value (NAV) and NAV (Net Asset Value) are the same terms in the context of mutual funds. They represent the per-unit market value of a mutual fund’s assets minus liabilities.

What is NAV formula?

The Net Asset Value (NAV) of a mutual fund is calculated by dividing the total market value of the fund’s assets minus liabilities by the number of outstanding units. It’s expressed as:

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

How is the net asset value NAV of a mutual fund calculated?

The Net Asset Value (NAV) of a mutual fund is calculated by subtracting the total liabilities from the total assets of the fund and then dividing this value by the total number of outstanding units. The formula is: NAV = (Total Assets – Total Liabilities) / Total Outstanding Units.

Disclaimer: Investing in mutual funds is subject to market risks. Please read all scheme-related documents carefully before investing. Potential returns from a mutual fund product are not guaranteed. Past performance is not indicative of future results. None of our articles are intended to and should be considered investment/financial advice from CoinSwitch.

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