Everything You Need to Know About Mutual Fund NAV

Net Asset Value (NAV) is the value of each unit of a mutual fund. It helps you understand the value of your investment and is used to measure the fund’s performance. NAV is calculated by subtracting the fund’s total liabilities and expenses from its total assets. The remaining value is then divided by the total number of units issued. For most New Fund Offers (NFOs), the initial NAV is usually set at Rs. 10.
 

The role of NAV in mutual funds is important because it reflects the fund’s value based on its assets. For open-ended mutual funds, the NAV is updated every business day. For closed-ended mutual funds, it is calculated less often, such as weekly or monthly.

Some investors believe that a new fund offer (NFO) is cheaper because it starts with a NAV of Rs. 10. However, the NAV of a mutual fund is based on the value of its underlying securities and the returns earned since the scheme was launched. A lower NAV does not make a mutual fund scheme better or more affordable. Two mutual fund schemes can hold the same portfolio, but one may have a NAV of Rs. 10 while the other has a NAV above Rs. 100. Even with different NAVs, the actual value and investment potential of both schemes remain the same.

• NAV is the value of a mutual fund per unit; however, it does not give any idea about returns.
• Do not make NAV your investment decision guide; there are other aspects like past performance as well as the risk associated with a mutual fund.
• Distinction of NAV from stock prices: The value of the NAV is not affected by demand.

A mutual fund company (AMC) launches a new scheme through a new fund offer (NFO). During an NFO, each unit is usually offered at Rs. 10. Suppose the AMC collects Rs. 1,000 crore from investors. Since the unit price is fixed at Rs. 10, the AMC issues units based on the total amount collected. In this case, it issues 100 crore units (Rs. 1,000 crore ÷ Rs. 10). These units are then allotted to investors according to the amount they invest. For example, if you invest Rs. 1 lakh, you receive 10,000 units.

The AMC invests the collected money in securities as defined by the scheme's objective. As market prices change, the value of these investments also changes. If the portfolio value increases to Rs. 1,020 crore the next day, and expenses are ignored, the NAV becomes Rs. 10.20 (Rs. 1,020 crore ÷ 100 crore units). Your investment of Rs. 1 lakh is then worth Rs. 1,02,000 (10,000 × Rs. 10.20).

In an open-ended mutual fund scheme, investors can buy or sell units at the daily NAV. Existing investors can also redeem units at the same NAV, provided no exit load applies. Simply put, the NAV is the price at which mutual fund units are bought and sold.

No, the NAV is not a main decision-making factor in the selection of a mutual fund. A surprisingly large number of investors make a common error in believing that a low NAV implies a better investment, but that is not so. Instead, you should look at factors such as historical performance, AUM, alpha and beta, rather than just at the NAV.

You can discover the NAV using sites such as the Bajaj Broking website. Here's how you can do it:    

Step 1: Access the Bajaj Broking website.

Step 2: Log in to your account.

Step 3: Search for mutual funds of your choice.

Step 4: Refer to the NAV displayed under the name of the fund.

NAV stands for Net Asset Value, which is the price per unit of a mutual fund, whereas AUM is the total market value of all the assets managed by the mutual fund. Therefore, the NAV lets you know the value of just one unit, but AUM states the size of the overall funds and the performance it provides.

Many investors look for the same-day NAV cut-off timing in mutual funds, especially when markets are volatile. However, getting the same-day NAV does not depend only on submitting your investment request before the cut-off time. The most important requirement is that the funds must be realised by the mutual fund.

For online transactions, this means:

The transaction must be completed before the cut-off time.

The money must be credited to the AMC’s account on the same business day.

This is important because payment methods such as NEFT, RTGS, UPI, and net banking may have different processing times. If the funds are credited after the cut-off time, even when the order was placed earlier, the next business day's NAV will usually apply.

Understanding how the mutual fund cut-off timing affects NAV is important, particularly for short-term investors or those making tactical investment decisions.

NAV is calculated at the end of each business day after the market closes. If you miss the cut-off timing, your transaction moves to the next valuation cycle. This means:

You may receive a higher or lower NAV depending on the market movement on the next business day.

The difference can be more noticeable during periods of high market volatility.

For long-term investors, a one-day difference in NAV may have only a limited impact on overall returns. However, for investors making lump-sum investments or rebalancing their portfolios, the cut-off timing can affect the purchase or redemption price.

The applicable Net Asset Value (NAV) for redeeming mutual fund units is determined by the type of mutual fund and the time at which your redemption request is submitted. In India, the applicable NAV is based on the cut-off time and the day your request is received. If you submit your redemption request on a Business Day before the standard cut-off time of 3:00 PM, you will generally receive that business day’s closing NAV, subject to the applicable rules. If the request is placed after 3:00 PM, the redemption is usually processed using the next business day’s closing NAV. If the request is submitted on a weekend or a public holiday, it will be treated as received on the next business day, and the applicable NAV will be based on that day. Understanding the applicable NAV helps investors estimate the redemption value of their mutual fund units and plan withdrawals more effectively.

Mutual fund Net Asset Value (NAV) is updated once every business day after market hours, usually between 9:00 PM and 11:00 PM. NAV represents the per-unit value of a mutual fund and is used to calculate the price at which you buy or redeem units. The NAV that applies to your transaction depends on when your purchase or redemption request is submitted and when the mutual fund receives your payment, as per the applicable cut-off time rules. If your transaction and funds are received before the prescribed cut-off time, the same day's NAV may apply. If they are received after the cut-off time, the next business day's NAV is generally applicable. As NAV is updated only once each day, investors should be aware of the cut-off timings when planning their investments or redemptions. Understanding how mutual fund NAV is allotted can help you make informed investment decisions and avoid confusion about the price at which your units are processed.

If the fund gives a good return and meets your investment, then there should not be any choice between the funds on the basis of NAV. The NAV is just an expression of the fund's value and cannot be said to be undervalued or overvalued.

The impact depends on the assets owned by the fund. If your mutual fund invests in large-cap shares in the Sensex or the Nifty, then its NAV would move with the movement of these indices.

No, because unlike share prices that are altered by demand, NAV is not subject to demand and supply forces. Hence, it cannot be overvalued or undervalued.

NAV is the same, whether you invest through SIP or even in a lump sum. SIP only accommodates investing regularly, but the NAV is uniform for all investors.

Yes, NAV may decline if the value of the assets being held by the mutual fund decreases. However, it is a part of investments and nothing to be worried about.

While you are investing in mutual funds, you need always to see beyond the NAV and track factors that affect performance. The correct understanding of NAV can help you make better investment decisions and cater to your financial requirements.

The Bajaj Broking website can help you look at over 4,000 mutual fund schemes. Additionally, you can use a mutual fund calculator to compare mutual funds, and select options that are best suited for your goals.