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NAV – What Is Net Asset Value, Meaning, Formula

What Is NAV?

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.

How To Calculate NAV Of Mutual Fund?

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.

What Is The Role of NAV in Mutual 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.

Net Asset Value vs. Market Price

  • 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

What Is Net Value of Assets For Mutual Funds

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What Is Net Asset Value (NAV)?