Net Asset Value (NAV) represents the per-share value of a fund’s assets minus its liabilities. It is a key metric for mutual funds and ETFs, providing investors with a clear picture of the fund’s value at any given time.
Key Points About NAV:
- Net Asset Value (NAV) is also called the book value or unit value of a mutual fund.
- NAV is defined as the difference between the total assets and liabilities of a fund, divided by the number of outstanding units.
Net Asset Value in Mutual Funds:
In the mutual fund context, NAV plays a critical role in determining the price per share or unit of the mutual fund. In India, mutual funds are required to calculate NAV daily, giving investors a daily snapshot of their investments.
How is Net Asset Value (NAV) Calculated?
The formula for calculating NAV is straightforward:
This formula is vital for both open-ended and close-ended funds in India.
NAV and Mutual Fund Performance:
- NAV reflects the fund’s value, but it does not directly indicate performance. A higher or lower NAV doesn’t mean a fund is performing better or worse than others.
- After dividend payment, the NAV of a mutual fund decreases by the dividend amount.
NAV Financing:
NAV financing refers to loans taken by funds using their NAV as collateral, commonly used in private equity or real estate funds.
Net Asset Value (NAV) for Investors:
- NAV per share/unit: This represents the value of one share or unit of a mutual fund.
- Investors should note that mutual funds calculate their NAV at the end of every trading day based on the closing market value of securities in their portfolio.
NAV in Table Form:
| Parameter | Details |
| Formula | (Total Assets – Total Liabilities) / No. of Units |
| Meaning in Mutual Funds | Price per unit of a mutual fund |
| Calculation Frequency | Daily, after the market closes |
| Impact of Dividend | NAV decreases after dividend payout |
| Importance for Investors | Helps investors understand the value of each unit |
NAV Calculation Example:
Below is a step-by-step breakdown of how Net Asset Value (NAV) is calculated, along with a practical example:
Step 1: Calculate the Total Assets:
- Total Assets include the current market value of all the securities held by the mutual fund (e.g., stocks, bonds), any cash or cash equivalents, and accrued income (like interest or dividends).
Example:
- Market value of stocks/bonds = ₹50 crore
- Cash and cash equivalents = ₹5 crore
- Accrued income = ₹1 crore
- Total Assets = ₹50 crore + ₹5 crore + ₹1 crore = ₹56 crore
Step 2: Calculate the Total Liabilities:
- Total Liabilities include all expenses, such as management fees, operational costs, and any short-term obligations.
Example:
- Management fees = ₹1 crore
- Other liabilities (operational costs) = ₹0.5 crore
- Total Liabilities = ₹1 crore + ₹0.5 crore = ₹1.5 crore
Step 3: Subtract Total Liabilities from Total Assets:
- To get the Net Assets, subtract the total liabilities from the total assets.
Example:
Net Assets=₹56 crore−₹1.5 crore=₹54.5 crore
Step 4: Divide by the Total Number of Outstanding Units:
- Outstanding Units refer to the total number of shares or units issued by the mutual fund.
Final NAV Calculation:
NAV per unit=₹10.90
This provides a clear and simple visual explanation of how the Net Asset Value of a mutual fund is calculated, with an easy-to-understand example for clarity.
NAV vs. Market Price InfographicA comparison of how NAV is different from market prices of individual securities in the mutual fund.
Key Differences Between NAV and Market Price:
| Criteria | NAV | Market Price |
| Definition | Value of mutual fund units | Price of individual securities (stocks, bonds) |
| Frequency of Calculation | Calculated once a day (after market close) | Changes continuously during market hours |
| Determination | Based on total assets and liabilities of the fund | Determined by the demand and supply of individual securities |
| Impact of Investor Actions | Not directly influenced by buy/sell orders (in open-ended funds) | Influenced by buy/sell orders on the stock exchange |
| Reflects | Overall portfolio value of the fund | Value of an individual security |
| Example | ₹10.90 per unit for mutual fund | ₹500 per share for stock A |
Net Asset Value (NAV) is an essential concept for mutual fund investors, particularly in India. Understanding how NAV works helps investors make informed decisions regarding fund performance, dividends, and the price they are paying per unit of the fund.