What is NAV meaning in mutual fund?

Net Asset Value, usually referred to as NAV, is the market price of each unit of a mutual fund. When a mutual fund scheme is launched through a New Fund Offer (NFO), the Asset Management Company (AMC) assigns the face value at which investors can buy units. After the NFO, the capital pooled from investors is used to invest in various asset and securities. As the value of the assets changes in the market, the net asset value of the mutual fund changes with it.

If you want to know the net asset value meaning, just think of it as the latest market price of each unit of the mutual fund scheme.

How is NAV calculated with example

Now that you know what NAV in a mutual fund is, you may be wondering how it is calculated. Here is the simple formula for calculating the Net Asset Value of a mutual fund:

NAV = {(Market Value of the Mutual Fund) + (Current Assets) – (Current Liabilities and Provision)} / (Total Number of Outstanding Units)

To understand the NAV meaning, let’s take a simple example.

If a mutual fund has Rs. 4 crore invested in securities and Rs. 1 crore in cash. The total assets of the mutual fund stand at Rs. 5 crore (Rs. 4 crores + Rs. 1 crore). Now suppose the liabilities of the fund stand at Rs. 50 lakh. This makes the total value of the mutual funds to be Rs. 4.5 crore (Rs. 5 crores – Rs. 50 lakh). If the fund has 1 lakh outstanding units, then the Net Asset Value of the mutual fund would be Rs. 450 (Rs. 4.5 crore / 1 lakh).

Significance of NAV

When investors want to invest in a mutual fund, they look at the Net Asset Value of the mutual fund because it helps to:

Get daily updates: The Securities and Exchange Board of India (SEBI) mandates AMCs to declare the NAV for each scheme on a daily basis. Investors who want to redeem units or invest in a mutual fund can get daily updates by keeping an eye on the NAV. They can make a buying or selling decision based on the NAV and other performance parameters of the scheme.

As the NAV definition tells you, it is the price per unit of the mutual fund. However, it is important to consider other parameters in addition to the NAV before making an investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.