The Net Asset Value (NAV), suggestive of its name, is the value of a fund after deducting its liabilities. It price at which you can buy units of a scheme. It is also regarded as the price at which you sell the unit.
If you shift the context to companies and businesses, then NAVs could be the difference between the assets and liabilities, forming the overall capital, or the net worth of a company. The term has gained popularity when it comes to pricing and valuation of a fund.
Mutual funds do not operate the same way as stocks do — stocks trade in real time, while mutual funds are decided at the end of the day based on their day-end assets and liabilities.
Mutual funds assets are the total market value of the fund's investments, its receivables, accrued income, cash, and cash equivalents. At the end of the day, the market value of the fund is calculated. The market value is based on the price at which the securities held by the fund's portfolio close. The cash and liquid assets held by the company are accounted under cash and cash equivalents.
Under these values, receivables stand for the interest that applies for the day and dividends. The money which a fund earns is termed as the accrued income. The sum of receivables and accrued income, and any other variants that apply in this case make for the asset of the fund.
Companies borrow money from banks, and that adds up to the liabilities of their mutual funds. Liabilities also include the payments that are due to be sent by the company and various other charges that the company owes to other entities.
The liabilities of a fund can also extend outside the country through shares issued to non-residents of the company and any other kind of payment that might be due abroad. Depending on the payment timeline and how soon they will be completed, liabilities get to be classified under long term and short term liabilities. Liabilities also include other factors through which a company shells out money, in the form of operating and management expenses of the company, audit fee, staff salary, utilities, marketing and other expenses are also included under liabilities.
When all these figures are known at the end of the day, the NAV of a company is then calculated by subtracting liabilities from assets.
The stock market closes at 3:30 pm, and the worth of the portfolio is then calculated by the companies. The closing price of these shares then become the opening price in the market for the next day.
You can find the NAV of a fund by dividing the difference between assets and liabilities by the number of shares investors hold. You can find out the per-share value of the fund by finding out the NAV, thus making it easier to plan out your mutual fund's investment portfolio.
Here is the formula for calculating NAV:
NAV = (Assets - Liabilities) / Total number of outstanding shares
If the NAV of a mutual fund is Rs 500, then you have to pay that amount to acquire one unit of that fund. Net investment of Rs 10,000 would allow you to purchase 20 units.
NAVs are released on working days by the company, and this why buying mutual funds are strictly time-bound. 2 pm happens to be the general deadline for daily investments. Post 2 pm, mutual fund units are allocated for the next business day — the same goes while redeeming mutual funds as well.
A company must be listed on the stock exchange if it wants investors to buy or subscribe to its shares. The value which it displays on the stock exchange is the same as the cost of its share. Several factors affect this mart price, such as the company's potential and its demand-supply ratio. The market price is only applicable during trading hours. THe price is reflected in two ways — the highest price which people are willing to pay for it, and the lowest price that shareholders are ready to sell it.
Net Asset Value, on the other hand, is the overall balance of the fund at the end of the trading day.
Investors mustn't confuse stock price with NAV. Upon seeing a lower stock price, a misunderstanding such as this can lead investors to believe that a lower price means that it is a better investment. A lower price value just does not define the performance of the mutual fund, so it should also not be the only deciding factor when it comes to buying a mutual fund.
The NAV of a mutual fund shows how the underlying assets held by the company have been performing. A higher NAV value does not determine the performance of the funds. You need to keep several other perspectives and performances in mind while investing in one, rather than just vouching for the NAV. A higher NAB does not promise lucrativeness. It would be best if you looked at how the fund has been performing over time to make the best measurement. A hurried decision calls for unnecessary risk, something which should always be avoided while investing.
Mutual funds on Finserv MARKETS are a great way to move towards your financial goals. The money which you invest here is taken care of by a fund manager, who then invests the money in shares, bonds, and stocks. The whole program is overlooked by The Securities and Exchange Board of India (SEBI), which means that your investments are well-protected.
There are no hidden charges or commissions on Finserv MARKETS. The account opening process is fast and hassle-free, and you also get access to detailed insights and summaries how your investments are performing in the market. Depending on your investment goals and risk profile, you also get access to exclusive offers that can further benefit your investment portfolio. Setting up your mutual fund account is also extremely simple. All you need to do is submit a few KYC documents and you are done.