How To Calculate NAV of Mutual Fund -Motilal Oswal

How Is the NAV Of A Mutual Fund Calculated

The NAV of a mutual fund is calculated by dividing the fund's total net assets by the number of units distributed to investors. In the case of investing, there are a few terms that are very important. Net asset value or the NAV is one such terminology for mutual fund investors. This abbreviation appears whenever you try to acquire or sell units of a mutual fund.

NAV stands for net asset value per unit of a mutual fund. Continue reading to learn how to determine a mutual fund's NAV and more. Mutual funds aggregate investor funds and reinvest them in the stock market on their behalf. The net asset value (NAV) of a mutual fund scheme is the market value per unit of each of the securities it owns. If you invest in a mutual fund, the fund will issue you units based on your investment amount.

How Is The NAV Calculated? 

The total worth of all the securities and cash in the portfolio of a fund, minus any liabilities, is divided by the number of outstanding shares to arrive at the NAV. The calculation of the NAV is crucial because it determines how much one fund share should be worth.

You cancalculate the NAV of a mutual fund by using the following steps:

  1. Divide the complete net assets by the complete number of issued units. 
  2. To calculate a mutual fund's total net assets, remove any liabilities out from the current value of its assets and divide the result by the number of units outstanding.
  3. The mutual fund's NAV is the result of this calculation.

As a result, the mathematical formula for NAV is as follows:

Net asset value = Assets – Debits divided by number of outstanding units 

Why Is NAV Calculation Important?

Every day, after market hours, all mutual funds calculate the market price of the securities. Using the aforementioned formula, the mutual fund house subtracts all existing liabilities and expenses to arrive at the day's net asset value (NAV). A mutual fund scheme's assets are split between liquid cash and securities. 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 management.

To Conclude

The book value of a mutual fund is its NAV. When investing in mutual funds, look at the fund's performance rather than its NAV. This can be achieved by looking at the fund's past returns.

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