Why you should know about NAV before investing in Mutual Funds?

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NAV is the net asset value that reflects a fund per share upon market value. The calculation of the NAV is done by dividing the total amount of cash and all securities in funds minus any other susceptibility by the no. of outstanding shares.

What is NAV?

Talking about the mutual funds, any mutual funds total or overall cost depends upon the price per unit of the fund. This process is termed as the NAV. If the market value (MV) of each share carried in a portfolio is divided by the total number of current funds then you get the NAV.

Is it relevant to Investors?

New investors believe that in comparison with the mutual fund of 20rs over 15rs, Rs. 15 is more economical to Rs. 20. Many people think that this observation is correct but it is not. The question arises why this lets you analyze more superior this leads you to choose a better mutual fund nav.

An investor might think of the price of equity share and the NAV is the same but this is not true. If they both share the same portfolio then they might not show any difference.

Difference between Market price and NAV

The market price of a share will always be going to be different from the NAV (Net Asset Value). Asset value cannot be stated as an indicator of mutual funds’ performance, the poor value of any fund doesn’t make it a better investment & vice versa.

The share value of any firms determines the market price of a share which includes the important factors like the company’s potential and the demand-supply which firmly related to the share price. Thus, it makes NAV different from the share price.

NAV Calculation

a) Daily calculation: This process contains the same pattern of share market. All the companies estimate and calculate the worth before it closes at 3:30 PM every day. The fund is deducted from payable as well from the expenses using a special formula that is used in every day.

Bank money is added and other payable money is deducted from others to find the asset value of the fund. The majority of the funds are fresh withdrawals, open-ended and new investments this can impact the unit so the fund manager sells or add shares.

NAV = Assets – (Liabilities + Expenses) / Outstanding Units.

b) General NAV calculation: The cost of an equity fund is the sum of the individual cost of each share they have. Fluctuation can be seen this is the main reason behind the mutual fund folios come with the daily value of the market.

An important role of the NAV in the mutual fund performance: Many investors think that the Mutual fund asset values are similar vein as of stock price. This turns their brain to believe that NAV is cheaper resulting in a better investment. In the reality check, it is not the indicator but it is a determining factor to choose a mutual fund.

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