Definition: Net Asset Value is the intrinsic values of a mutual fund scheme, also it is the per unit value of a mutual fund scheme .It is an indicator of the funds overall performance.
Thank you for reading this post, don't forget to subscribe!Mathematical Formula: In order to calculate the NAV of a Mutual Fund scheme, each asset and liability of the scheme needs to be valued.
NAV Per unit = (Funds Assets-Funds Liabilities)/Total Number of units of the scheme at a given date. Also called the funds per unit Market Value. It can also be calculated as = Unit Capital plus Reserves.
Where Funds assets includes total market value of receivables, investments, cash equivalents, cash etc. & Funds liabilities includes amount owed to lenders, outstanding payments & accrued expenses like staff salaries, management expenses, operating expenses etc.
NAV is required to be rounded to 4 decimal places in the case of Index Funds, Gold ETF & all debt Funds. but NAV is rounded to 2 decimal places in case of Equity Funds & balanced Funds
Which NAV is Better: A Higher NAV/ A Lower NAV ?
A fund with a higher NAV is considered as an expensive and gives a low return on your investment..
But if we compare two mutual fund schemes on a relative basis, such as NAV of a growth fund to NAV of another fund, in such case it is important to compare a funds NAV to its Market Price. If the NAV is much higher than the current market price, it is a green signal for buying opportunity.
How NAV changes on daily basis: Mutual Funds invest the money collected from investors in stock/security Market .As the value of stocks changes every day, So NAV also changes accordingly on daily basis.
But in case of stocks, Price changes in every second during the trading session. Whereas NAV of a Mutual Fund Scheme calculation is done once at the end of the Trading session. which is based on the closing market price.
Hence, when the value of stocks/securities in the fund goes up, the net asset value goes up. conversely, when the value of stocks/securities in the fund goes down, net asset value also goes down.
