Net Asset Value of the Mutual Fund Explained

Mutual funds are bought and sold in the form of units just like individual shares. The investors are allotted units based on the amount they invest. The price at which these units are purchased is referred to as the net asset value (NAV) of the mutual fund. 

In a way, the NAV of a mutual fund is the market value of all the assets held by the scheme. It highlights the per-unit value of the mutual fund scheme. It serves as the basis for making mutual fund investments.

As part of the portfolio-building process, each mutual fund scheme invests in various equity and debt instruments.  Considering that the market value of these equity and debt instruments alters on an everyday basis as they are traded on the stock exchanges, the NAV of the mutual funds investing in such securities also alters on a day-to-day basis. A change in the prices of the invested securities has a direct impact on the net asset value of the mutual fund.

So, what is the difference between the NAV of the mutual fund and shares? The NAV of a mutual fund scheme is calculated at the end of each day the equity markets are open. The NAV changes once a time in a day. However, the price of equity shares changes in real time as they are traded during market hours. 

Also, there is a limit to the number of shares that a company can release. The demand for the specific stock due to prevailing market sentiments is the prime factor that impacts the share prices. A mutual fund can issue fresh units whenever a new investment is received. The previous performance of mutual funds is highlighted by the growth of their investments, which plays a key role in determining the NAV of a mutual fund.

The NAV of a mutual fund is calculated by taking the total value of the assets held by the scheme, minus any liabilities and expenses from this amount, followed by dividing it by the total number of units issued by the scheme.

You May Also Like

Save Your Tax By Claiming Medical Expenditure Under Section 80D

The current financial year is near to end on 31st March. You…

Senior Citizens: PMVVY or SCSS investment scheme, which one is best?

Due to a fall in the interest rates offered on fixed deposits…

EPFO lowers the interest rate on PF deposits to 8.5% for FY 2019-20

The Employees’ Provident Fund Organisation (EPFO) has notified the interest rate for…