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What is NAV and does it impact the performance of the fund?

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How is NAV calculated?

The formula for calculating the NAV is given below:

NAV={(Market or Fair Value of Scheme's Investment)+(Current Asset)-(Current Liabilities and Provision )} /(Number of Outstanding Units Under the scheme)

The NAV of a mutual fund scheme is influenced by various factors such as the market value of its underlying assets, the number of units outstanding, and any expenses or liabilities associated with the fund. It must be noted that either low or high NAV has no bearing on budget, units, or performance. When the fund's underlying assets experience growth, the increase in a unit's value becomes more significant. This potential appreciation can positively impact the overall investment returns.

Does the NAV impact the performance of the fund?

The NAV defines the price at which investors can buy or sell units. Moreover, as the NAV reflects the performance of the securities held in the portfolio, it reflects the performance of the scheme adjusted for fees.

This means, to evaluate how the scheme is performing, investors can compare the NAV change (in percentage terms) of one mutual fund scheme versus another, or versus its benchmark. Investors can also use the NAV to judge the performance of the fund over any period, such as, during the last fiscal.

To conclude, a low NAV doesn’t necessarily mean that the fund has a lesser market value. It might be that the scheme would have launched recently. Nonetheless, it can be compared with the NAV of other mutual funds or the current market price of securities. Also, there is not a specified price at which the NAV should trade. For example, a mutual fund scheme that has been in existence for several years may have seen its NAV grow over time, on the other hand a new fund may have an NAV less than Rs.100 or Rs. 10. NAV change depends on change in the price of the underlying securities in the scheme.


How does NAV impact mutual fund investments?

The NAV determines the price at which you can buy or sell units. A higher NAV indicates you will get less number of units than say a scheme with lower. However, high or low NAV does not determine performance as the same is subject to change in prices of underlying securities.

Does a low NAV mean that the fund has a lesser market value?

Low or high NAV doesn’t reflect have any bearing on the market value. Mutual fund schemes that are launched years ago may have a higher NAV than the scheme launched recently.

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 an 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.

Points To Consider?