Net Asset Value (NAV)

NAV, or Net Asset Value, represents the performance of a mutual fund scheme. It is calculated as the market value of the scheme's securities divided by the total number of units, reflecting the per-unit value on a specific date.
EXPLORE FUNDS
What Is NAV in Mutual Fund
EXPLORE FUNDS
4 mins read
24-December-2024

NAV, or Net Asset Value, represents the performance of a mutual fund scheme. It is calculated by dividing the total market value of the securities held by the scheme by the total number of units outstanding on a specific date.

In this article, you will learn about NAV meaning, NAV formula, NAV calculation and many more in detail.

What is NAV?

NAV full form is Net Asset Value. It is a fundamental metric used to assess the value of a mutual fund. It represents the per-unit value of the fund's assets after deducting any liabilities. Essentially, NAV indicates the price at which investors buy or redeem mutual fund units.

NAV is calculated daily, reflecting the closing prices of all securities in the fund’s portfolio. This daily computation ensures that the NAV accurately represents the fund's value at the end of each trading day. For a detailed view of NAV calculations, refer to the screenshot suggested in the document.

Importance of NAV in mutual funds

1. Pricing

NAV is fundamental in mutual funds because it sets the price at which units are bought and sold. Unlike stocks, which are traded based on market prices, mutual funds transact at the end-of-day NAV, calculated after the market closes. This method ensures that all transactions for a day are executed at the same price.

2. Transparency

NAV contributes significantly to the transparency of mutual fund investments. It represents the current market value of a fund’s assets minus its liabilities, offering a clear snapshot of what an investor’s share is worth at any given time. This transparency ensures that investors can make informed decisions based on up-to-date and accurate valuation data.

3. Adjustments

NAV is also crucial for understanding how distributions, such as dividends and capital gains, affect a fund. When a mutual fund distributes these earnings to its shareholders, the NAV per share typically decreases by the amount distributed per share. Comprehending these adjustments helps investors recognize how distributions impact the overall value of their investment in the fund.

Overall, NAV serves as a cornerstone in the structure of mutual funds, influencing pricing, performance evaluation, transparency, and the understanding of financial adjustments within fund portfolios.

Determining the accurate Net Asset Value (NAV) for mutual funds

The Net Asset Value (NAV) of a mutual fund is a critical measure used to determine the value of the fund's units. It reflects the fund's per-unit value by calculating the total value of the fund's assets and deducting any liabilities. Here's a detailed breakdown of how NAV is determined:

Liquid Funds/Overnight Funds

All Other Schemes

Subscription

 

If the application is received by 1:30 p.m. and funds are available for utilisation before 1:30 p.m. without using any credit facility, the applicable NAV will be the closing NAV of the day immediately preceding the receipt of the application.

If the application is received by 3:00 p.m. and funds are available for utilisation before 3:00 p.m., the applicable NAV will be the closing NAV of the day on which the application is received.

If the application is received after 1:30 p.m. and funds are available for utilisation on the same day without using any credit facility, the applicable NAV will be the closing NAV of the next business day.

If the application is received after 3:00 p.m. and funds are available for utilisation, the applicable NAV will be the closing NAV of the next business day.

Regardless of the time of receipt of the application, if the funds are not available for utilisation before 1:30 p.m. without using any credit facility, the applicable NAV will be the closing NAV of the day on which the funds are available for utilisation.

Irrespective of the time of receipt of the application, if the funds are not available for utilisation before 3:00 p.m., the applicable NAV will be the closing NAV of the day the funds become available for utilisation before the cut-off time of 3:00 p.m.

Redemption

 

If the application is received by 3:00 p.m., the applicable NAV will be the closing NAV of the next business day.

If the application is received by 3:00 p.m., the applicable NAV will be the closing NAV of the day on which the application is received.

If the application is received after 3:00 p.m., the applicable NAV will be the closing NAV of the next business day.

If the application is received after 3:00 p.m., the applicable NAV will be the closing NAV of the next business day.


NAV is computed on a daily basis, typically at the end of the trading day, based on the closing prices of the fund's securities. This frequent updating ensures that investors have an accurate reflection of the fund's current value. For a comprehensive understanding, please refer to the screenshot suggested in the document.

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Frequently asked questions

What affects the NAV of a mutual fund?

NAV is affected by the fund's underlying asset values, expenses, income, and changes in the number of outstanding units. Market fluctuations and fund performance also play a role.

What does NAV mean?

NAV, or Net Asset Value, represents the per-unit value of a mutual fund, determined by dividing the total value of all its assets by the number of outstanding units.

What is the new rule on applicable NAV?

According to the recent regulation introduced on February 1, 2021, AMC will allocate mutual fund units on the same day if the payment is settled in the bank account within the specified cut-off time. This regulation is applicable to all mutual fund schemes, irrespective of the invested amount.

Is NAV calculated daily?

For open-end mutual funds, the NAV is typically calculated and published daily, reflecting the value of the fund at the close of each trading day. In contrast, closed-end funds usually calculate the NAV less frequently, such as on a weekly or monthly basis.

What is a good NAV for a mutual fund?

There's no single "good" NAV for a mutual fund. A high NAV simply reflects the total value of the fund's assets per unit. Focus on the fund's performance history, expense ratio, and alignment with your goals.

Is high NAV good or bad?

A high NAV doesn't necessarily indicate a better fund. A newer fund might have a lower NAV than an established one, but both could offer similar returns.

What is the NAV formula?

NAV = (Total Assets - Total Liabilities) / Number of Outstanding Units

How much NAV is good in mutual funds?

NAV is more about affordability than quality. A lower NAV might allow you to purchase more units initially, but investment decisions should prioritize factors like long-term growth potential.

What if NAV is low?

A low NAV doesn't inherently mean a bad investment. Consider the fund's overall strategy and track record. A low NAV could be an opportunity if the fund is on an upswing.

Is a higher NAV better in mutual funds?

A higher NAV is not inherently better in mutual funds. NAV simply reflects the per-unit price of the fund. The performance and growth potential of the fund are more important considerations than its current NAV when evaluating its investment value.

How do I choose a NAV for a mutual fund?

Choosing a NAV involves evaluating the fund's historical performance, management, expense ratio, and alignment with your investment goals. Rather than focusing on the NAV itself, consider the fund's overall potential for growth and risk tolerance to make an informed decision.

What is the difference between sale price and repurchase price in mutual funds?

The Sale Price is the NAV plus any entry load or charges when buying units. The Repurchase Price is the NAV minus any exit load or charges when selling units. The difference reflects transaction costs applied at purchase and redemption.

How does the cut-off time affect the NAV applicable to my transaction?

Cut-off times determine which day’s NAV applies to a transaction. If you invest before the cut-off time, you get the NAV of that day. Transactions made after the cut-off will use the NAV of the next business day.

Are NAVs of mutual fund schemes published daily?

Yes, NAVs of mutual fund schemes are published daily. They are updated at the end of each trading day based on the closing prices of the fund’s securities and are available on the fund house’s website and financial portals.

Why do NAVs of mutual funds vary from day to day?

NAVs vary daily due to fluctuations in the market value of the fund’s underlying assets. Changes in stock prices, interest rates, and other factors can affect the value of the investments held by the mutual fund.

What is the impact of exit load on the repurchase price?

The exit load is a fee deducted from the NAV when repurchasing units. It reduces the repurchase price and is applied to discourage early withdrawals. This fee impacts the amount an investor receives upon redeeming their mutual fund units.

What happens if NAV increases?

Impact on Investment Cost: The Net Asset Value (NAV) directly influences the cost of investing in a mutual fund. When the NAV rises, the cost per unit increases, and when the NAV falls, the cost per unit decreases. Monitoring the NAV helps you assess the investment cost more effectively.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

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Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.