What is Net Asset Value (NAV) | Net Asset Value (NAV) of a Mutual Fund is

From a common man's perspective, Net Asset Value (NAV) of a Mutual Fund is simply the price of one mutual fund unit. As a stock has a stock price, similarly, a mutual fund has an NAV. In mutual fund's term, NAV is the total asset value (net of expenses) per unit of the fund. NAV indicates the price at which a unit of a mutual fund is bought or sold.

Example

If you want to buy ₹10,000 worth of mutual fund "A" and the NAV on that day is ₹10 then you will get 1000 units of that fund.

Formula for calculating Net Asset Value (NAV) - NAV is calculated by dividing the net asset value of the fund by the total number of outstanding units.

NAV = (Assets of the fund - Liabilities of the fund)/ Total number of outstanding units of the fund

Where

• Assets - Market value of mutual fund investments + Receivables + Accrued Income
• Liabilities - Expenses such as management fees, operating expenses, distribution and marketing fees, audit fees , transfer agent fees, custodian fees, accrued expenses, etc.

When an investor invests a certain amount in any mutual fund scheme, he will be allotted certain number of units based on the NAV rate. So one unit of any mutual fund scheme can be bought at NAV of that scheme. NAV is calculated and updated at the end of each trading day. When an investor invests a certain amount in any mutual fund scheme, he will be allotted certain number of units based on the NAV rate. So one unit of any mutual fund scheme can be bought at NAV of that scheme. NAV is calculated and updated at the end of each trading day.

How NAV differs from Share Price?

Share Price of the public companies is listed on the stock exchanges. It is changed very frequently throughout the trading timings of the stock exchange. You can buy the share at prevailing share price anytime during the trading time. While NAV of any scheme is calculated by the mutual fund company. It will not change throughout the day like a share price. It remains fixed for one whole day. You cannot know the value of current NAV (that day's NAV, in which you are investing) at the time of investment in any scheme. It is available of previous day.

Share price is not equal to the book value of the share while NAV is equal to the book value of the unit of the scheme.

Points to note with regard to Net Asset Value (NAV)

1. It is an indicator of the market value of the fund's units.
2. It is nothing but the 'book value' of the fund.
3. It is calculated by the Asset Management Company (AMC) at the end of every business day in case of an open ended fund.
4. It helps track the performance of the mutual fund you have invested in.
5. The NAVs of mutual funds are required to be published in newspapers.
6. The NAVs are also available on the web sites of mutual funds.
7. A higher or lower NAV has no significance and it should not be considered as the basis for selecting the right mutual fund.
8. A low or high NAV does not impact the return on investment from the mutual fund. It is quality of fund, which makes a difference on the returns.
9. Low NAV of a mutual fund refers that the fund has either been floated recently or the fund has performed poorly.
10. An investor can easily come to know about the actual increase in the value of his investment by calculating the percentage increase in the mutual fund NAV in which he has invested.
11. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.
12. NAV indicates whether a mutual fund is generating wealth for its investors.
13. Through NAV, you can track the performance of any mutual fund.
14. Under dividend option, NAV gets reduced by the dividend declared & paid.
15. Your decision of investing in any scheme should not only depend upon NAV but you must also check the returns generated by the mutual fund scheme

SEBI guidelines regarding Net Asset Value (NAV)

All Mutual Funds need to publish their NAV at every business day as per SEBI guidelines. The Mutual Fund must adhere to all SEBI regulations relating to valuation norms and daily or weekly disclosure of NAVs. The Mutual Fund should maintain documentation of all NAV procedures and methodologies and ensure that the documentation identifies all elements critical to NAV calculation. The Mutual Fund should carry out periodic compliance and audit checks on the NAV calculation methodology to ensure accuracy of calculations and their compliance with the regulatory requirements.

As per SEBI regulations, the NAV of an open-ended scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. However, NAV of a close-ended scheme targeted to a specific segment or any monthly income scheme may be published at monthly or quarterly intervals. All mutual funds are also required to put their NAVs on the website of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.

How is Applicable NAV Determined?

Applicability of NAV forLiquid Funds / Overnight FundsAll Other Schemes
Subscription
• Where the application is received up to 1.30 p.m. on a day and the funds are available for utilization before 1.30 p.m. without availing any credit facility, the closing NAV of the day immediately preceding the day of receipt of application.
• Where the application is received after 1.30 p.m. on a day and funds are available for utilization on the same day without availing any credit facility, the closing NAV of the day immediately preceding the next business day.
• Irrespective of the time of receipt of application (before or after 1.30 p.m. on a day), where the funds are not available for utilization before 1.30 p.m. without availing any credit facility, the closing NAV of the day immediately preceding the day on which the funds are available for utilization.
• Where the application is received up to 3:00 p.m. and funds are available for utilization before 3:00 p.m., the closing NAV of the day on which the application is received.
• Where the application is received after 3:00 p.m. and the funds are available for utilization after 3:00 p.m., closing NAV of the next business day.
• Irrespective of the time of receipt of application (before or after 3:00 p.m.), where the funds are not available for utilization, the closing NAV of the day on which the funds are available for utilization before cut-off time of 3.00 p.m.
Redemption
• Where the application is received up to 3.00 pm: Closing NAV of day immediately preceding the next business day.
• Where the application is received after 3.00 pm: Closing NAV of the next business day.
• Where the application is received up to 3.00 pm: Closing NAV of the day on which the application is received.
• Where the application is received after 3.00 pm: Closing NAV of the next business day.