Introduction
Mutual funds offer an excellent investment vehicle, regardless of whether you are a beginner or a seasoned investor. Investors usually spend a lot of time finding the right mutual fund based on their investment strategies, goals, and risk tolerance.
An important metric used to do this is a mutual fund’s Net Asset Value (NAV). NAV depicts the per-share market value of a fund. In a mutual fund, money is gathered from various investors with similar goals and invested in different instruments by a professional fund manager. Every mutual fund is divided into several units, and each investor receives specific units as per their investment amount from the fund. The NAV depicts the net value of all assets held in the fund.
To calculate the NAV of a mutual fund, subtract total liabilities and expenses from total assets and divide it by the total number of outstanding units. You can obtain the NAV of a mutual fund from the scheme factsheet on the concerned fund’s website. ​​​​​​
Open Demat Account and Start Trading!
Key Points About Mutual Fund NAV
Here are the ten key points all investors must know about mutual fund NAV.
NAV Isn’t Everything
NAV is a helpful metric. However, it shouldn’t be used as the sole determinant to decide whether to keep or withdraw a specific investment. A common misconception is believing a lower NAV to be favourable. Unfortunately, this means investors might sell old mutual funds in favour of newer ones with lower NAVs. Important factors to be considered include the past performance of the mutual fund, size of Assets Under Management, etc.
Pay Attention to AUM
AUM stands for Assets Under Management, and it represents the total assets managed by a specific mutual fund. AUM reflects the size and scale of a mutual fund, its performance, and fees. So, don’t forget to consider the AUM while investing.
NAV of Mutual Funds Purchased in Evening
If a mutual fund is purchased before 3 PM, the prevalent NAV of that day is used. Investors will receive the corresponding units of a mutual fund at the value prevalent at the end of the day. For orders placed after 3 PM, the NAV will be that of the next working day.
NAV When Mutual Funds are Sold in the Evening
As with purchase, if any units are sold before 3 PM on a day, the NAV will be the existing value on that day. In case an order to sell is placed after 3 PM, the NAV will prevail on the following working day.
Update the Time of NAV
The NAV of a mutual fund is updated daily at the end of the day, 9 PM. Unlike stock value, which is updated live, NAV isn’t due to challenges in tracking the asset value held, which changes throughout the day.
High NAV is Fine
As long as a mutual fund performs well, a high NAV isn’t something to worry about. Investors needn’t worry about NAV being high, unlike share prices. This is because NAV cannot be overvalued or undervalued since it’s based on the AUM and not market demand.
Effect of Sensex and Nifty
The effect of Sensex and Nifty also varies depending on the type of mutual funds and the assets invested.
Stock Price and NAV
Stock prices change according to the market demand. However, NAV doesn’t because it represents the book value of all assets held by a fund. NAV cannot be overvalued or undervalued like stock prices.
NAV of SIP
Mutual funds can also be invested in lump sums or SIPs (Systematic Investment Plans). So, the NAV of an SIP functions the same as it does for a mutual fund.
NAV Fluctuations
NAV fluctuates just like stock prices, and even funds performing well experience it. NAV fluctuations are nothing to worry about as long as the mutual fund performs well. ​​​​​​​
Conclusion
Using the information mentioned above, you can, too, make a well-informed decision. Since all investments are subject to market risk, carefully read through the scheme-related documents and consult a professional if needed.
Financial Calculators: SWP Calculator | EMI Calculator | SIP Calculator | Compound Interest Calculator | CAGR Calculator | Sukanya Samriddhi Yojana Calculator | Retirement Calculator | Mutual Fund Returns Calculator | EPF Calculator | Inflation Calculator
Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price