Learning everything about the asset you're investing in is a good habit. As a mutual fund investor, you must gain
familiarity with several terms, but few are more critical than Net Asset Value (NAV). NAV is the unit price of a
mutual fund scheme. While studying the performance of a particular mutual fund scheme, you will notice that it is
represented by its NAV.
A mutual fund's expenses related to administration, fund management, distribution, etc., are charged against the
mutual fund's assets. A mutual fund includes these expenses in its NAV. Read on further to understand the
significance of NAV in mutual funds.
How is the NAV of a mutual fund scheme calculated?
A mutual fund scheme computes the market value of its securities daily once the market hours end. The Asset
Management Company (AMC) will deduct all the expenses as well as outstanding liabilities to find out the NAV of the
So, how to calculate NAV in mutual funds? Here's the formula that is used to calculate the NAV of a mutual fund:
Net Asset Value = Fund assets – Liabilities / Total number of outstanding units
We'll use an example to understand this better. AMCs offer new mutual fund schemes to investors through New Fund
Offerings (NFOs). If you want to invest ₹10,000 in a fund with a NAV of ₹10, you will be allotted 1000 units. If you
decide to invest ₹30,000 in another mutual fund scheme with a NAV of ₹20, you will receive 1500 units of the mutual
What is the difference between market value and NAV?
The market value of a share depends on the demand and supply and an analysis of its future performance. On the other
hand, an NAV is a price at which investors buy mutual fund units. An AMC determines the fund's NAV at the end of the
Is the NAV of an asset important for investors?
Many investors solely focus on the NAV of a mutual fund. They choose to invest only in mutual funds with a low NAV.
However, this is not the best way of investing, as the NAV of a mutual fund does not necessarily reflect its
performance in the future. It is simply the price at which investors buy units of the fund.
When is the value of a mutual fund's NAV updated?
Every mutual fund scheme updates the value of its NAV at the end of a trading day. The Securities and Exchange Board
of India (SEBI) has made it compulsory for mutual fund companies to update the values of their respective NAVs
What is the difference between NAV and AUM?
A company's Assets Under Management (AUM) are the total number of assets the mutual fund controls, including its
liquid assets. Meanwhile, a mutual fund's NAV is the price of each unit of the mutual fund.
Understanding the meaning and importance of the NAV of a mutual fund is critical for investors. It provides clarity
about how mutual funds work and which funds are better for you. The NAV based on which you acquire a certain number
of units of a fund should not be the primary focus. You can instead focus on whether your investments' value is
appreciating or not. This way, you can make much better decisions while choosing your mutual fund investments.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.