Home
>
Articles
>
What is NAV in Mutual Funds? : NAV Meaning, Full Form & More | INDmoney

What is NAV in Mutual Funds? : NAV Meaning, Full Form & More | INDmoney

Last updated: 17 Nov, 2021 | 06:33 pm

What is NAV in Mutual Funds? : NAV Meaning, Full Form & More | INDmoney

While investing in mutual funds, investors are often at a loss on how to gauge the performance of a mutual fund. As mutual funds comprise a pool of securities instead of a single asset, the performance of a mutual fund cannot be estimated based on a single asset. The concept of Net Asset Value helps investors get information about mutual funds when combined with other factors such as past performance, risk factors, alpha, beta, etc.

What is NAV?

Net Asset Value (NAV) of a mutual fund denotes the per-share market value of a mutual fund. In other words, NAV is calculated as the net current value of total assets in a mutual fund after deducting the total value of all liabilities, if any, which is then divided by the total number of outstanding units in the fund. It varies on a per-day basis and is declared at the end of a trading day. Understanding NAV meaning in mutual funds tells us how much one share of the fund is worth.

To understand the role of NAV in mutual funds, it is also essential to know how it is different from per unit share prices. The per-unit share prices depend on the demand and supply and constantly change during trading hours, while the NAV of a mutual fund means the average closing market prices of all assets in the mutual fund.

Importance of NAV in Mutual Funds

NAV of mutual funds is commonly used while buying or redeeming units rather than to determine the fund's performance. Rather than showing the market performance of mutual funds, NAV is impacted by the changes in the values of its underlying assets. However, the growth or decline of NAV over time may be considered one of the indicators of a fund's performance. Since NAV is declared by fund houses daily, it demonstrates the daily fluctuations in the value of underlying assets, which plays a vital role in determining the price at which units can be bought or redeemed.

NAV Calculation

  • NAV of a mutual fund is the price to be paid for the mutual fund scheme units. If you invest Rs 50,000 in a mutual fund with a net asset value of Rs 500, you can purchase 100 units of the mutual fund.
  • NAV of a mutual fund is calculated at the end of each trading day with this formula:

Net Asset Value = [Assets in the mutual fund – (Liabilities + Expenses)] / Number of outstanding units in the mutual fund

  • All liabilities and expenses of managing the fund are deducted from the combined value of cash and securities in a mutual fund's portfolio. The net asset is then divided by the total number of outstanding units.

NAV and Mutual Fund Performance

Comparing the NAV of mutual funds is not the best indicator of the performance of mutual funds. Often, investors are misguided into thinking that low NAV in mutual funds means it is a cheaper and better investment. In truth, the appreciation in NAV of mutual funds is a more critical factor to be considered an indicator than only NAV itself. Many other important factors have relevance to profitability related to investment in a mutual fund.

Selecting two mutual funds at random, let us try to gauge whether only considering NAV in mutual funds would give an appropriate performance measure. The table below shows the current NAV as well as returns of the two selected funds:

Even though the current NAV of ABC is considerably higher than the NAV of XYZ, the former's annual returns are much higher. If an investor selects a fund merely looking at the NAV and ignoring other factors like past performance, they may end up with a comparatively lower-performing fund. NAV gives a picture of how all underlying assets in a mutual fund performs daily.

What is a Good NAV for a Mutual Fund?

A low NAV means you get more units to invest in, and a high NAV means you get lesser units to invest in. However, it has no direct bearing on the performance of the fund. A mutual fund's performance must not be judged based on how high or low its NAV is.

Outlook

While investing in mutual funds, it is crucial to consider factors like returns, investment goals, risk preference, etc. NAV has an essential role in calculating how many units of a fund you will be allotted for a fixed amount of money. However, it is imperative to remember that a low NAV doesn't necessarily mean a good fund and similarly, a high NAV doesn't necessarily mean a poor performing fund. 

INDmoney is an investment app that provides more than 5000 mutual funds without brokerage fees or commission on buying or selling. All transactions are easily processed with zero paperwork, and all your investments can be tracked and managed 24/7 conveniently through the app.

FAQs

What is the full form of NAV?

Net Asset Value

What does the NAV of a mutual fund tell you?

It tells you the current value of one unit of the portfolio.

What is the NAV cut-off time?

Type of Schemes: Liquid Funds & Overnight Funds

  • Subscription (including Switch-in from other schemes) - 1:30 p.m.
  • Redemption (including Switch-in from other schemes) - 3:00 p.m.

All other schemes (Other than Liquid Funds/Overnight Funds)

  • Subscription (including Switch-in from other schemes) - 3:00 p.m.
  • Redemption (including Switch-in from other schemes) - 3:00 p.m.

What NAV will be applicable for redemption?

  • Where the redemption transaction is received on any Business Day at official points of acceptance of transactions up to 3.00 p.m., NAV of the same Business Day shall be applicable.
  • Where the transaction is received after 3.00 p.m., NAV of the next Business Day shall be applicable.
We are a SEBI registered investement advisor
Mutual Funds watchlist
aditya birla sun life flexi cap fund growth direct plan|ABSL low duration fund direct growth|axis bluechip fund direct growth|axis capital builder fund series 4|axis balanced advantage fund direct growth|axis equity saver fund direct growth|axis multicap fund direct growth|axis global innovation fund of fund direct growth|axis long term equity fund growth NAV|axis quant fund direct growth|axis small cap fund direct growth|axis value fund direct growth|baroda dynamic equity fund direct growth|BOI AXA bluechip fund|canara robeco flexi cap fund direct growth|canara robeco small cap fund direct growth|canara robeco value fund direct growth|DSP quant fund direct|franklin india smaller companies fund direct growth|HDFC arbitrage fund direct growth|HDFC balanced advantage fund direct growth|HDFC developed world index fund NAV|HDFC flexi cap fund direct growth|HDFC housing opportunities fund direct growth|HDFC hybrid equity fund direct growth|HDFC nifty 50 index fund|HDFC index fund sensex plan|HDFC mid cap opportunities direct plan growth|HDFC multi asset fund direct growth|HDFC small cap fund direct growth|HDFC top 100 fund direct growth|HSBC midcap fund direct growth|ICICI prudential balanced advantage fund|ICICI bluechip fund direct growth NAV|ICICI prudential commodities fund direct plan growth|ICICI nasdaq 100 fund direct growth|ICICI nifty next 50 index fund direct growth|ICICI small cap fund direct growth|ICICI prudential technology direct plan growth calculator|ICICI ultra short term fund direct growth|IDBI india top 100 equity fund direct growth|IDBI small cap fund direct growth|idfc us equity fund of fund direct growth|kotak short term fund direct growth|kotak emerging equity fund direct growth|kotak multicap fund direct growth|kotak global innovation fund of fund NAV|kotak gold fund direct growth|kotak savings fund direct growth|kotak small cap fund direct growth|L&T emerging businesses fund direct growth|mirae asset large cap fund direct growth|mirae asset midcap fund|motilal oswal nasdaq 100 fund of fund|navi nifty 50 index fund direct growth|nippon india banking and financial services fund direct growth|nippon banking fund direct|nippon india flexi cap fund NAV|nippon india large cap fund direct growth|nippon india pharma fund direct growth|nippon india small cap fund direct growth|PGIM small cap fund direct growth|quant flexi cap fund direct growth|quant infrastructure fund direct growth|quant tax plan direct plan growth|SBI bluechip fund direct growth|SBI corporate bond fund direct growth|SBI equity minimum variance fund direct growth|SBI flexi cap fund|SBI magnum children's benefit fund investment direct plan|SBI nifty index fund direct growth|SBI small cap fund direct growth|SBI technology opportunities fund direct growth|tata banking and financial services fund direct plan growth|tata business cycle fund|tata technology fund direct growth|tata equity pe fund direct growth|tata ethical fund direct growth NAV|tata focused fund direct growth|tata index fund nifty direct plan|tata india tax savings fund direct plan growth|UTI focused equity fund direct growth|UTI nifty index fund direct growth NAV|UTI nifty 50 index fund direct growth