How to calculate the NAV of a Mutual Fund

Learn what NAV means, how it is calculated, and how it should factor into your investment decisions.
Calculate NAV
4 mins
17 Feb 2024

Mutual funds are one of the most popular investment options in India, as they offer diversification, professional management, and liquidity. However, before investing in any mutual fund scheme, it is important to understand how its performance and value are measured. One of the key indicators of a mutual fund’s performance is its net asset value or NAV. In this article, we will explain what NAV is, how it is calculated, and what it means for investors.

Net asset value formula

The formula for calculating mutual fund NAV is:

NAV = (Total Assets - Total Liabilities) / Total units

Here:

Assets = Market value of investments+ Receivables+ Accrued income+ other assets

Liabilities = Accrued expenses+ Other liabilities and payables

For example, suppose a mutual fund has Rs. 100 crore invested in securities and Rs. 10 crore in cash, for total assets of Rs 110 crore. The fund has liabilities of Rs. 5 crore, which include management fees payable, operating expenses and other charges payable. The fund has 10 crore units outstanding. The NAV of this mutual fund will be calculated as:

NAV = (110 crore – 5 crore) / 10 crore = Rs. 10.5 per unit

How is NAV calculated?

NAV is calculated by the fund house at the end of each trading day, based on the closing market prices of the portfolio’s securities. The fund house updates the NAV on its website, on the websites of the Association of Mutual Funds in India (AMFI) and the Securities and Exchange Board of India (SEBI). Investors can also check the NAV of various mutual funds on online platforms like Bajaj Finserv.

The relationship between NAV and mutual funds

NAV is an important indicator of a mutual fund’s performance, but it is not the only one. Investors should also consider other factors such as the fund’s objectives, strategy, portfolio composition, risk-return profile, expense ratio, and past returns.

NAV alone does not tell us how well a fund has performed over time, or how it compares with other funds in the same category or benchmark. For that, we need to look at the returns generated by the fund over different time periods, such as one year, three years, five years, or since inception. Returns are calculated by comparing the change in NAV over a period with the initial NAV at the beginning of the period.

When is NAV calculated?

NAV is calculated at the end of each trading day, after the stock markets close. However, the NAV that investors get when they buy or sell units of a mutual fund depends on the cut-off time of the fund.

The cut-off time is the time before which an investor’s application for purchase or redemption of units is accepted by the fund house for that day’s NAV. The cut-off time for equity and debt funds is 3 pm, while for liquid and overnight funds, it is 1.30 pm. If an investor submits the application before the cut-off time, they will get the same day’s NAV. If they submit it after the cut-off time, they will get the next business day’s NAV.

What does a high or low NAV indicate?

A common misconception among investors is that a low NAV means a cheap fund, and a high NAV means an expensive fund. However, this is not true. NAV is just a reflection of the market value of the fund’s assets, and it does not indicate the quality or potential of the fund.

A low NAV may mean that the fund is new, or that it has underperformed in the past. A high NAV may mean that the fund is old, or that it has performed well in the past.

The NAV of a fund does not affect its returns if the proportionate change in NAV is the same as the proportionate change in the market value of the fund’s assets. Therefore, investors should not base their investment decisions on the NAV of a fund, but on its performance, risk, and suitability for their goals.

Conclusion

NAV is an important metric to understand and track the value and performance of a mutual fund. However, it is not the only factor to consider while investing in a mutual fund. Investors should also look at the fund’s profile in detail, and compare it with other funds in the same category, before making any investments.

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Frequently asked questions

How to check NAV of mutual fund?

To check the NAV of a mutual fund, you can visit the website of the mutual fund company or AMFI website or use an online portal that provides updated NAVs of various mutual funds.

What affects the NAV of a mutual fund?

The NAV of a mutual fund is affected by the market value of the underlying assets (stocks, bonds, etc.) and the expenses incurred by the fund. When the value of the assets increases or the expenses decrease, the NAV goes up. When the value of the assets decreases or the expenses increase, the NAV goes down.

What is NAV mean in stocks?

NAV means net asset value in stocks. It is the difference between the total value of the company’s assets and its liabilities. It represents the book value or the intrinsic value of the company. NAV per share is calculated by dividing the NAV by the number of outstanding shares.

How to calculate the net asset value per share?

To calculate the net asset value per share, you need to deduct the total liabilities of the fund from the total assets of the fund. Then divide the result by the number of outstanding shares.

The formula is:

NAV = (Total Assets - Total Liabilities) / Total units

Where:
Assets = Market value of investments+ Receivables+ Accrued income+ other assets
Liabilities = Accrued expenses+ Other liabilities and payables

Why is NAV calculation important?

NAV calculation is important because it helps investors to know the fair value of the fund or the company. It also helps to compare the performance of different funds or companies over time. NAV calculation also determines the price at which investors can buy or sell the units or shares of the fund or the company.

Is a higher or lower NAV better?

A higher or lower NAV does not necessarily indicate a better or worse fund or company. A higher NAV may mean that the fund or the company has performed well in the past, but it does not guarantee future returns.

A lower NAV may mean that the fund or the company is undervalued, but it may also reflect poor performance or high expenses. The NAV should be compared with other factors such as returns, risk, fees, etc. to evaluate the quality of the fund or the company.

What time do mutual funds update NAV?

Mutual funds update NAV by 11 pm of the same business day. The NAV is calculated based on the closing prices of the underlying assets. The NAV is then published on the fund’s website and other platforms.

What is the best NAV for mutual fund?

There is no such thing as the best NAV for mutual fund. The NAV is just a reflection of the value of the fund’s assets and liabilities at a given point of time. It does not indicate the quality or the performance of the fund. The best mutual fund is the one that suits your investment goals, risk appetite, time horizon, and cost considerations.

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