How To Calculate NAV of Mutual Fund

To calculate a mutual fund's NAV, divide the total value of cash and securities minus liabilities by the number of shares outstanding.
Calculate NAV
4 mins
17 Feb 2024

The net asset value (NAV) of a mutual fund is derived by dividing its total net assets by the number of units outstanding. For investors, understanding NAV is crucial when buying or selling mutual fund units. It represents the per-unit market value of the fund's holdings. Mutual funds pool capital from investors to invest in stocks, bonds, or other securities. NAV calculation helps investors gauge the value of their investment relative to the fund's holdings.

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.

In this article, we will explain what NAV is, how it is calculated, and what it means for investors.

What is the Net Asset Value or NAV in mutual funds?

NAV, short for Net Asset Value, denotes the per-unit market worth of a mutual fund. It indicates the current market value per share of the fund, offering clarity on investment performance and facilitating transactions.

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Initial unit prices of mutual funds often start at Rs. 10 and increase as fund assets grow. A higher NAV typically signifies a more sought-after and well-performing fund.

NAV holds particular importance for open-end funds, where shares are not traded among shareholders like other investments.

Understanding mutual fund NAV helps investors evaluate their investment's performance, aiding decisions on continuation or withdrawal. Thus, NAV serves as a crucial benchmark in managing investment portfolios.

Key takeaways

  • Net Asset Value (NAV) is a critical metric for assessing mutual fund performance. It represents the per-unit market value of a fund's assets, calculated daily after market close.
  • NAV is computed using the formula: NAV = (Total Assets - Total Liabilities) / Total units. It includes assets like market investments and cash, minus liabilities such as management fees and expenses.
  • Fund houses update NAV daily and publish it on their websites, AMFI, and SEBI platforms. Online platforms like Bajaj Finserv also provide NAV information, aiding investor decision-making.
  • While NAV reflects current fund value, it alone doesn’t indicate fund quality or potential. Investors must evaluate other factors like strategy, risk profile, expense ratio, and historical returns.
  • NAV for transactions depends on the fund's cut-off time. Equity and debt funds accept applications until 3 pm, while liquid and overnight funds close at 1.30 pm.
  • Investors should base decisions on a fund's performance and suitability rather than its NAV alone. Assessing returns over different periods and comparing with benchmarks is crucial.

Formula for calculating the NAV of a mutual fund

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 to calculate the NAV of a mutual fund

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.

Factors affecting the NAV calculation

Understanding these factors helps in comprehending how NAV in mutual funds fluctuates and its significance in investment evaluation.

Factors Affecting NAV Calculation

Description

Market value of assets

Determines NAV based on asset market values; increases in asset value raise NAV, and vice versa.

Expense ratio

Higher fees reduce NAV as management expenses are deducted from fund assets.

Redemption fee

Charges levied on selling shares reduce NAV by subtracting from the fund's total assets.

Dividends and capital gains

Distribution of profits to investors reduces NAV as these payments decrease fund assets.

Sales charges (Front-end Load)

Fees paid by investors when purchasing shares lower NAV by reducing the value of assets.

Fund inflows and outflows

Investor transactions impact NAV; more inflows increase fund assets and NAV, while outflows decrease them.


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.

How to calculate NAV of mutual fund with example?

The NAV of a mutual fund is calculated by subtracting the fund's liabilities from its assets, and dividing the result by the number of outstanding units. For example, if a fund has assets worth Rs. 100 crore, liabilities of Rs. 5 crore, and 10 crore outstanding units, the NAV would be (100 - 5) / 10 = Rs. 9.5 per unit.

What is the formula to get the NAV?

Here’s the formula for calculating NAV = (Total Assets - Total Liabilities) / Total units

Is NAV calculated daily?

Yes, NAV is calculated daily at the end of each trading day. It reflects the fund's updated value based on the closing prices of its underlying assets.

How do you calculate NAV total return?

NAV total return is calculated by considering both the change in NAV and any distributions (dividends or capital gains) made to investors. It can be calculated using the formula:

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

How do you calculate NAV in Excel?

To calculate NAV in Excel, you can use a simple formula where you input the values for total assets, total liabilities, and total units outstanding. For example, if cell A1 contains total assets, B1 contains total liabilities, and C1 contains total units outstanding, the formula in Excel would be = (A1 - B1) / C1. This formula will give you the NAV per unit of the mutual fund.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.