What Is NAV in Mutual Funds and Why Does It Matter?

When investing in mutual funds, you'll often come across the term NAV in mutual funds. It plays a crucial role in understanding how your investment performs over time. For new investors, this term might seem technical, but it's essential to grasp its meaning to make informed decisions.

In this article, we'll break down what NAV means, how it works, and why it matters.

What Is NAV in Mutual Funds?

Net Asset Value (NAV) represents the per-unit price of a mutual fund.
Formula:
NAV = (Total Assets - Total Liabilities) / Total Number of Outstanding Units Simply put, it is the market value of the assets held by the fund minus its liabilities, divided by the number of units outstanding.
It acts as the benchmark for the value of one unit in the fund. So, if you invest in a mutual fund today, you are buying units at the day's NAV price. With this, you can understand how NAV in mutual funds is calculated and why it fluctuates daily.

Why NAV in Mutual Funds Matters

Many investors make the mistake of assuming that a fund with a lower value NAV is cheaper and better, or that the highest NAV mutual fund is highly profitable.
Here's why you should know about NAV:

Entry and Exit Price

When you invest in a mutual fund, your purchase happens at the NAV of that day (subject to cut-off timings). Similarly, when you redeem, the units are sold at the prevailing NAV.

Tracking Performance

NAV changes daily, reflecting the fund's portfolio performance. A rising NAV indicates a growth in the fund's value and vice versa.

It's Not the Only Performance Indicator

While NAV in mutual funds helps determine the unit price, it doesn't reflect returns directly. A fund that started with a NAV of ₹10 and now has ₹15 has returned 50%. But another fund starting at ₹100 and now at ₹120 has given just 20%, despite the higher NAV.

Helps Compare Growth Over Time

NAV is crucial for long-term tracking. Understanding how NAV is calculated in mutual funds allows you to compare the growth of your investment over the years, rather than getting swayed by unit prices alone.

How NAV Is Calculated in Mutual Funds?

The calculation of NAV in mutual funds involves aggregating the total market value of all securities in the fund's portfolio and deducting any expenses or liabilities.
For example, let's understand how to calculate NAV of mutual fund with example:
Suppose a mutual fund holds assets worth ₹500 crore and liabilities worth ₹5 crore. If the fund has 10 crore outstanding units, the NAV would be:
NAV = (₹500 crore - ₹5 crore) / 10 crore = ₹49.50
This ₹49.50 is the price you pay per unit if you buy into this mutual fund on that particular day.

Factors Affecting NAV in Mutual Funds

The following are the factors that contribute to daily fluctuations:

• Market Movement: Changes in the value of securities held by the fund.
• Dividends or Interest Income: Earnings from the securities get added to the fund's assets.
• Fund Expenses: Charges such as management fees, audit fees, etc., reduce the NAV.

Understanding these influences helps in interpreting the actual performance of your investments beyond just looking at the NAV.

How to Find NAV of Mutual Fund?

NAVs are updated daily and made available on:

• AMFI (Association of Mutual Funds in India) website
• Respective Asset Management Companies (AMC) websites
• Online investment platforms and apps
• Brokerage firms like Indiabulls Securities Limited

To stay informed about your mutual fund portfolio's performance, you should check on NAV regularly.

NAV vs Fund Performance: Key Insight

Let's take a moment to debunk a common myth about NAV:
"A lower NAV mutual fund isn't necessarily better than a higher NAV one."
The NAV value should not matter as much as the fund's return, asset allocation, and performance meets its benchmark. You should always look at historical returns, consistency, fund manager performance, and portfolio holdings before choosing any funds.

Conclusion

NAV in mutual funds helps investors understand how mutual fund units are priced and how their investment grows over time. While NAV itself doesn't indicate profit or loss, it acts as a reference point to gauge performance.

Always pair your understanding of NAV with other factors such as past returns, fund objectives, and risk levels before investing. You can explore mutual fund investment options and track NAVs on Indiabulls Securities Limited (formerly Dhani Stocks Limited)

FAQs

1. Does a higher NAV mean a better mutual fund?

Not necessarily. A higher NAV doesn't indicate better performance. Look at percentage returns and fund consistency instead.

How to find NAV of mutual fund?

You can check the latest NAV on AMFI's website, AMC portals, or trusted platforms like Indiabulls Securities.

Is it good or bad to buy a mutual fund with low NAV?

A low NAV is neither good nor bad, it simply shows the per-unit price of the fund. What truly matters are the fund's returns, portfolio quality, and performance over time, not just the NAV value.