Everything you need to know about NAV in Mutual Funds and How Is It Calculated?

New investors in mutual funds are curious as to what NAV (Net Asset Value) is. NAV and share price are related but not precisely the same as one another. Between the two, there are significant distinctions.

While many people are enquiring as to what NAV is, many others are perplexing themselves by attempting to invest in funds based on the NAV values of various funds. To understand what NAV implies completely, read the points below.

What Is NAV for Mutual Funds?

The market value per share of a mutual fund is represented by its net asset value (NAV). It refers to the price at which investors sell their fund shares to a fund firm for a profit (the bid price) (redemption price).

A fund’s net asset value (NAV) is determined by dividing the portfolio’s entire value of cash and securities, less any liabilities, by the number of outstanding shares.

Calculation of NAV of Mutual Funds

Based on the closing market values of the assets in the portfolio, a NAV calculation is performed once at the conclusion of each trading day. The computation of a mutual fund’s NAV follows a simple formula:

NAV is calculated as (assets – liabilities) / the total number of outstanding shares.

Investors in the Top mutual fund company in India should pay attention to the total value figure since it may be used to determine the price per unit of a fund. The price per unit, which is the unit of measurement in which NAV is often expressed, is obtained by dividing the entire value of a fund by the total number of outstanding units. As a result, the NAVPS and the price of a mutual fund are updated at roughly the same time.

Comparing stock prices with mutual fund NAV

Compared to common stocks or equities, which are issued by businesses and traded on a stock market, mutual fund shares are priced using a NAV that is considerably different from that used for common stocks or equities when you buy mutual funds online.

A corporation may issue a limited number of equity shares through with an initial public offering (IPO) and maybe more offers in the future. These shares are then traded on markets like the New York Stock Exchange (NYSE). Market forces, such as supply and demand for shares, determine the pricing of stocks. Only market demand is used to determine the value or price structure of stocks.

Should Mutual Fund Investors Pay Close attention to the NAV?

No. NAV is essentially meaningless when it comes to buy mutual funds online. The mutual fund’s NAV is something that Indians do give a lot of consideration to. Newer mutual funds have lower NAVs than older ones. Most recent mutual fund investors have backed up the myth that funds with lower NAVs are preferable by making investments in younger mutual funds.

In reality, there have been occasions where individuals have sold their older mutual fund shares in order to purchase younger mutual fund shares.

When are NAV updates made?

At the conclusion of each business day, NAV is updated. At the conclusion of each day, mutual funds update the NAV. Mutual funds must update their NAV by 9 p.m. every day, per SEBI regulations. The majority of mutual funds have their own unique schedules for updating the AUM and NAV. Naturally, this is before 9:00 p.m.

Because it is difficult to continually track the value of various assets owned by a mutual fund, the NAV is not updated in real-time.

What Impact Do the Sensex and Nifty Have on the NAV of a Mutual Fund?

Depending on the kind of mutual fund, yes.

Depending on how much those mutual funds have invested in businesses that are a component of the Sensex, Nifty, or both, Sensex and Nifty will have an impact on any NAV. Changes in the Sensex or Nifty have a significant impact on the NAV of large-cap mutual funds, which invest in the largest firms in the nation.

Mutual funds with a multi-cap strategy invest in businesses of all sizes. Depending on how many large-cap assets they have, they could or might not be impacted by fluctuations in the Sensex or the Nifty.

It should be noted that the performance of mid-cap and small-cap funds is frequently influenced by the performance of large-cap funds. Therefore, assuming that movements in the Sensex or Nifty wouldn’t have an impact on mid-cap and small-cap firms would be foolish.

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Varun Pal

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