What is NAV | NAV Formula | How to calculate NAV
If you are a new mutual fund investor, you may be wondering what NAV means.
What is NAV (Net Asset Value)
The market value of all securities held by the mutual fund scheme is known as the Net Asset Value (NAV). The performance of a mutual fund scheme is measured by the NAV or Net Asset Value.
The NAV per unit of a mutual fund can be calculated by dividing the market value of the mutual fund scheme’s securities by the total number of units in the mutual fund scheme on any given date.
In simple terms, NAV is the price you pay for the mutual fund scheme’s units. In general, mutual fund units start at Rs 10, but it increases once the assets under management of the fund
Mutual funds have NFOs (New Fund Offers) at a set price of Rs 10 You must note, that a lower NAV does not imply a less expensive mutual fund. Total assets minus total liabilities divided by the total number of outstanding units is the NAV formula. The formula for calculating a fund’s NAV is as follows: (Total Assets – Total Liabilities) / Total Number of Outstanding Units = Net Asset Value
How is NAV Relevant to Investors?
NAV just affects how many units are allotted for the amount invested. As an investor, you should be more concerned with how much your investment has grown in value rather than how many units you hold. The value of a scheme’s NAV is more important than the value of the scheme itself. In other words, return should take priority over NAV. Now let’s see How to calculate Nav? what is NAV Formula
How to Calculate NAV?
General NAV Calculation
Let’s say you invest Rs 5,000 in a mutual fund with a net asset value of Rs 500, you would be able to buy 10 units. and suppose You invest Rs 1 lakh in two different Mutual fund schemes A & B, for example. Mutual fund scheme A has a NAV of Rs 10 and mutual fund scheme B has a NAV of Rs 20.
The following units of mutual fund scheme have been assigned to you:
Mutual Fund Scheme A: Rs 1,000,000 divided by Rs 10 = 10,000 units
Mutual Fund Scheme B: Rs 1,00,000 / Rs 20 = 5,000 units
Daily NAV Calculation
Every day, after market hours, all mutual funds calculate the market value of the securities. the mutual fund house subtracts all existing liabilities and expenses to get the net asset value (NAV) of the day.
Net Asset Value = [Assets – (Liabilities + Expenses)]/ The quantity of outstanding units
A mutual fund scheme’s assets are split between securities and liquid cash. Equities, debentures, bonds, commercial paper, and other money market instruments are examples of securities.
All liabilities and expenditures associated with operating the fund are deducted by the fund manager. You can determine the NAV by dividing the total value of cash and securities in a mutual fund’s portfolio minus required liabilities, then dividing by the total number of outstanding units.
Conclusion: We’ve learned about what NAV stands for and how it’s calculated. The NAV only decides how many units are allocated to you for your investments. What matters is how much your investments have risen in value, not what the NAV was when you bought them. NAV appreciation is far more important than NAV itself. With this knowledge of NAV, you should be able to make more smart investment selections.
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