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.
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
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.
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)
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.