Today, a good way to invest your wealth is to opt for a mutual fund investment. This is relatively less risky when you compare it with investments in stocks and other assets. In a mutual fund, amounts of money from different investors are collected together as a fund. This is managed by a fund manager who buys securities with this pooled amount of money.
The fund in a mutual fund allows for a diversification of asset allocation, thus making this a less risky investment. With different assets in a single fund, in case one performs badly, there is always the compensation that the others will make up for the loss. The best mutual funds to invest in are those with securities of companies you know are on the rise, as far as their overall performance and growth is concerned. A term that is commonly used in the context of mutual funds is net asset value or NAV. When you invest in any products, it is vital that you are aware of terms like NAV.
The NAV, or the net asset value is representative of the net value of a particular entity. As a calculation, NAV means the total value of any given entity’s assets with the total value of the said entity’s liabilities subtracted. NAV is most frequently used with reference to a mutual fund investment. It is also used in the context of investments to do with an exchange traded fund, or ETF. The NAV is the per unit, or per share, value of the fund at a particular time or date.
The NAV serves the purpose of identifying potential opportunities for investment in ETFs, mutual funds, or indexes. You can also use the NAV to view your own holdings in a portfolio. You may invest in the share market today, and you can view your share portfolio by using NAV.
Technically, the NAV is applicable to any given financial product or appropriate business entity dealing with the concepts of accounting, namely liabilities and assets. In the case of business entities, the NAV represents the net value of the organisation. NAV, as a term, has become popular as it relates to the valuation of a fund, as well as the pricing of a fund. For a fund, this is computed when you divide the difference between liabilities and assets by the amount of shares or units that investors hold. Therefore, the NAV of a fund is the value per share. This makes the process of transacting and valuing shares in any given fund. In the current day and age, online mutual fund investment is possible, and you can calculate the NAV in a simple way online too.
If you wish to calculate the net asset value of a mutual fund, you can use the following straightforward formula:
NAV = (Assets - Liabilities) divided by the total amount of outstanding shares
Since, in any mutual fund investment, the regular purchase and sale of shares takes place after the fund has been launched, a mechanism for pricing of shares must be in place. The NAV helps to determine this.
The way that a mutual fund operates is by collecting funds from several investors and making a pool of money. This collected wealth is used for investment in a range of stocks and shares, and other securities, depending on the fund’s goals. The best mutual funds to invest in have a specified amount of shares allocated to every investor based on the amount that is invested in the fund. Investors enjoy the freedom to sell any shares in the fund at future dates and gain profits or make losses.
The investment and redemption of shares takes place at later dates, after the launch of any mutual fund. The net asset value is a mechanism through which shares within the fund are priced. With any change in the fund’s NAV (based on a per sock/share value), there will be a corresponding change in its price. Stock prices can change from moment to moment as they are traded in real time. However, mutual funds do not follow the same principle. Instead, the pricing of a mutual fund is based on the “end of the day” method of pricing according to liabilities and assets.
In any mutual fund investment, the assets of a fund constitute the market value of all the fund’s investments, cash and its equivalents, accrued income and receivables. The liabilities include any funds that are owed to lenders (banks), payments pending, and a range of fees and charges that are owed to different related entities. Furthermore, the mutual fund could have liabilities that are foreign, due to shares having been issued to NRIs, etc. Any outflows are termed as liabilities for a mutual fund. In order to compute the NAV for a specific day, you can see that a range of items can be represented as liabilities and assets taken for calculation purposes.
The NAV does matter in a mutual fund because it provides a quantifiable source of pricing information in any given mutual fund. While choosing any mutual fund as an investment product, you may also use its net asset value to determine the proportion of assets against liabilities of the fund. Typically, you should find more assets than liabilities, but if liabilities are on the high side, you can avoid the fund. These days, mutual fund investments are famous for giving you investment products that are suited to your distinctive financial aims.
Online mutual fund investment is easy with reputed brokerages like Motilal Oswal, and you don’t have to open a demat account to invest in a mutual fund. Although it is advised that you open a demat account for any investment, you may choose not to. Other than mutual funds, you may wish to diversify your portfolio by exploring other products too. Motilal Oswal has a wide variety waiting for you.
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