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Net Asset Value, commonly known as NAV, is a key metric used in the investment world to assess the value of mutual fund units and other pooled investment products. It gives investors a clear picture of what each unit of a fund is worth, based on the fund’s assets and liabilities. Understanding NAV helps in evaluating fund performance, comparing schemes, and making more informed investment decisions.
Net Asset Value (NAV) refers to the per-unit value of an investment fund’s assets, minus its liabilities. It is a critical measure used to determine the price at which units of mutual funds and other investment products are bought or sold. NAV is commonly used by asset management companies to reflect the current market value of a fund.
NAV is calculated once per day after the market closes and is disclosed by fund houses. It provides a standard way for investors to assess the performance and current value of their holdings in mutual funds or exchange-traded funds (ETFs).
NAV serves as a key financial indicator for investors and fund managers. It helps evaluate the current value of a fund’s portfolio and enables comparison across different schemes. While NAV itself does not indicate whether a fund is expensive or cheap, it serves as a benchmark to track fund performance.
For new investors, NAV helps understand fund selection. For existing investors, it assists in tracking fund growth and deciding when to enter or exit.
NAV is computed using the following formula:
NAV = (Total Assets – Total Liabilities) / Number of Outstanding Units
Here’s a step-by-step breakdown:
Total Assets include the current market value of all securities held by the fund, accrued income, and receivables.
Total Liabilities include fees, expenses, and payables.
Outstanding Units refer to the total number of fund units held by investors.
Assume a mutual fund has:
Total assets worth ₹500 Crores
Liabilities amounting to ₹20 Crores
10 Crore outstanding units
NAV = (₹500 Cr – ₹20 Cr) / 10 Cr = ₹48 per unit
Let’s say you invest ₹9,600 in a mutual fund with a NAV of ₹48.
Units allotted = ₹9,600 / ₹48 = 200 units
If the NAV rises to ₹52, your investment value becomes:
₹52 × 200 units = ₹10,400
Thus, your notional gain is ₹800.
This simple illustration highlights how NAV fluctuations impact the investment value in mutual funds.
NAV has multiple applications across different investment products. Some of the common uses include:
Mutual Funds: Used to determine purchase/redemption price.
Exchange-Traded Funds (ETFs): Traded around NAV in the open market.
Portfolio Valuation: Helps assess fund performance over time.
Investor Entry/Exit: Influences decision-making on when to invest or redeem units.
The table below outlines key differences between NAV and share price for a clearer comparison of both:
| Feature | Net Asset Value (NAV) | Market Price of a Share |
|---|---|---|
Meaning |
Value per unit of fund assets |
Current trading price on exchange |
Determined by |
Asset management company |
Market demand and supply |
Updated |
Once daily post-market hours |
Real-time during trading hours |
Used in |
Mutual funds, ETFs |
Equities and ETFs |
Influenced by |
Fund’s holdings and expenses |
Market sentiment and earnings |
While NAV is a reflection of a fund's underlying value, the market price can trade at a premium or discount depending on investor demand.
Although NAV is a useful measure, it has a few limitations:
Does not reflect real-time value for open-ended mutual funds
Can be impacted by fund expenses and charges
Not an indicator of fund performance alone
Ignores market sentiment, demand-supply factors
Cannot be used in isolation for investment decisions
Investors should consider other metrics such as returns, portfolio composition, and fund management strategies alongside NAV.
Net Asset Value plays a crucial role in evaluating investment schemes like mutual funds and ETFs. While it provides clarity on the unit value of the fund, it should be analysed in context with other factors. Understanding how NAV works can help investors make informed decisions and assess fund performance more accurately.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Net Asset Value (NAV) refers to the value of a single unit of a mutual fund, calculated by dividing the fund's net assets by the total number of outstanding units.
NAV = (Total Assets – Total Liabilities) / Number of Outstanding Units
NAV is calculated by the fund house based on the fund’s underlying assets, while share price is determined by market demand and supply on the stock exchange.
Shares do not have a NAV in the traditional sense. NAV typically applies to mutual funds, while shares are valued based on market price.
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