NAV is sum total of market value of all shares held in portfolio. Like cash, less liabilities. And also divided by total number of outstanding units. Thus, NAV of mutual fund unit is nothing but ‘book value. Check Net Asset Value of various company.
Meaning of NAV
NAV is difference between values of your liabilities. And value of your funds assets. Because, it define as find is overvalued or undervalued. Therefore, it has high effect in open end funds. You will give at time of investment withdrawal. And price per unit is agreed by market with close end market. Hence, it will agree either below or above NAV.
What is NAV in Mutual Funds?
However, in more simple terms in mutual fund. Because, NAV is calculate on per share of fund. Similarly, stocks have stock price. But Mutual funds have an NAV (net asset value). So, if you want to buy one share of Mutual fund. You will purchase at NAV. You can see difference between Mutual fund NAV and stock price.
Therefore, NAV will not change throughout day. Like stock price will change in market. But NAV will not Change. Because, NAV will updated at end of trading day. So, when you buy mutual fund at listed NAV price only. You can purchase more than you planned. You can also see examples of NAV.
Similarly, NAV price shows yesterday’s price. Therefore, your purchase will be based on Updated NAV. At end of current trading day. Because of this, you may not know exact NAV. When you buy or sell shares. However, if NAV increases on day you made your purchase. It is important to know this.
Mistaken about NAV
Therefore, this situation arises from view of NAV. You may think that fund at 10rs is cheaper than Rs 15. However, this opinion is wrong. You can see two funds with same portfolio. Hence, no matter what their NAV. NAV makes no difference. Mutual fund, closed end, exchange traded fund and UIT have NAV.
Similarly, you will carry this view. Because, you think that NAV of MF is similar. Due to market price of an equity share. However, it not true. It calculated once a day after stock market closes. You can search how to calculate NAV of private company.
Net Asset Value Vs Stock Price
However, NAV is price of one share in Mutual fund. Therefore, stock price reveal an actual sale. You can see on some public securities market. Because, stock price refers to market price. You can view particular stock is trading at particular time. You can also searches on NAV Vs Price.
Therefore, it is bit confusing. Because, you can see different ways stock price reported. And mutual fund holds variety of securities. Such as stocks, bonds, bank certificates and government securities. In addition all securities have different market price. NAV shows value of mutual fund.
When Net Asset Value is rising all time high. You may think that fund is getting costly. So, you may decide to buy fund when price comes down. Because rule of thumb for investing is to buy low. NAVs and stock price are similar. Method of valuation of shares.
Hence, both represent price of unit or share of an investment. Therefore, in stock price. You can multiply stock price of company with total number of shares. You will get company’s market capitalization. But, if you multiply NAV of fund with total number of units. You will get funds total net assets.
NAV differs from stock price
However, there is no concept as market value for MF unit. Therefore, you buy MF units at NAV at book value. Hence market price of stock is different from its book value. But two differ a lot. Since, NAV is based on bunch of underlying assets.
Its value is confirms only once at the end of day. Therefore, stock price is available throughout trading hours. Moreover, not like stock price. NAV does not give you an idea about performance of MF scheme. Check Net asset value Vs market value.
Impact of NAV on its return
Certainly, it is common believe. Because, funds with lower NAV will gives better returns. So far it is not true. For example, take two funds with NAV of 50 Rs and Rs 100. Respectively, you invest Rs 1000 in both of funds. So you will get 20 and 100 units from funds. Therefore, after year you will get 50 percent return on both funds. You may check on methods of NAV formula.
However, value of your investment in first fund Rs 1500. An in second fund also becomes Rs 1500. Hence returns in both are same as per NAV of fund. So it is not because of NAV. It is quality of fund will greatly impact your returns. You can find how effects NAV. Net Asset Value calculation
Similarly, NAV has nothing to do with returns of scheme cost. You want to buy in scheme is its performance. It is mandate to know past performance of fund. You must see on fund size. And fund manager’s experience and history in managing funds. Hence, before making final decision to buy fund.
NAV affect performance of fund
You must know truth that NAVs have not impact. On performance of mutual fund. You need to ignore NAV before buying mutual fund. It will not effect in your decision. Probably, there is no relationship between NAV and performance of MF. Check when does net asset value increase?
Therefore, these funds NAV will have absolutely no bearing. Because, how it’s going to perform in future and past. NAV of mutual fund will adjust to dividend payment. You set to gain or lose based on your choose to buy MF.
Importance of Higher and lower NAV
If you planning to invest your money in MF. And your decision will not affect with high and low NAV. NAV does not say about performance of fund. When fund house launches new fund (NFO). And units of fund have standard NAV of RS 10.
As above, fund may have lower NAV. Because it’s net assets are low or no of units are high. Hence, NAV drop due to dividend payout. Similarly, high NAV can be on good performance over years. But, in mutual fund past performance will never give future guarantee. You can check on mf dividend explanation.
However, all securities in mutual funds are calculated daily. Therefore, all expenses are deducted. And its value divided by number of units in fund is its Net Asset Value. Usually, it fall under two types such as securities and cash. Check How often does NAV change.
Hence, this security has both bonds and stocks. Asset value of fund consists of stocks, cash and bonds at market value. And dividends and interest grow. Because, liquid assets are build in total assets. Like, liabilities money owned to creditors. And other expenses arises are also added. Check on Net asset value per share.
Finally, mutual funds depend on stock markets. They are usually declared after closing hour of exchange. As per SEBI guidelines, all MF are required to publish. Their NAV at every business day. You can make up any NAV when you start of fund. So ignore NAVs while making your investing decision.