11 Mins

The Net Asset Value (NAV) of a mutual fund is the price of one unit of the fund. Though NAV is similar to the share price of an equity stock, they are not exactly the same. NAV cannot be a deciding factor for you in choosing a mutual fund for investment. In this article, we have listed the things to remember about mutual fund NAV for you to consider before investing.

What is Mutual Fund NAV?

The Net Asset Value (NAV) is the price of one mutual fund unit. Mutual funds take money from individual investors and invest it in various assets such as stocks, bonds, and other financial securities. Mutual funds may not always invest all of the money they have on hand. Furthermore, because equity oriented mutual funds invest in equities, the fund’s value fluctuates depending on the stock market movements.

Mutual funds can be bought in units. You are allocated mutual fund units when you invest in mutual fund. The fund units are bought at NAV. Furthermore, NAV is a representation of a mutual fund’s total assets.

How is the NAV of a Fund Calculated?

The NAV of a mutual fund is computed using the following formula:

(Value of all securities held + value of receivables – value of payables) / Total number of units

The value of all securities and receivables is the fund’s assets, and payables are the liabilities.

Each scheme of the mutual fund receives capital from investors. 

The funds are used to purchase securities in accordance with the scheme’s investment objective and asset allocation. If accrued interest is not yet received by a scheme, it is recorded as a receivable. After adding receivables to the value of the portfolio, expenses are subtracted. Expenses include asset management costs, scheme expenditures, distributor commissions, and broker commissions. This total is then divided by the total number of fund units.

Let’s understand NAV computation with an example. The value of all Scheme A securities is 5,000. The total value of receivables for a fund is INR 500. The payables total is INR 50. The total number of units is 100.

NAV = (1000+500-50)/100 = 14.50

Therefore, the Net Asset Value of the fund is INR 14.50.

How Different is NAV From Share Price?

NAV and Share Prices are quite different. NAV is the unit value of a mutual fund that invests across a basket of securities. While a share price is the value of a company’s stock. Stock prices fluctuate in response to market demand. On the other hand, demand does not affect NAV. NAV reflects the mutual fund’s book value.

Stock prices are also expected to reflect a company’s book value. In the case of businesses, the book value would comprise the company’s assets as well as its profits. However, one more metric might affect the stock price: demand. A stock’s price can rise if too many individuals are interested in it. On the other hand, if too many investors start selling a particular stock, the prices will drop.

Mutual fund NAVs do not fluctuate in response to demand. This is why the NAV cannot be both overvalued and undervalued. This is why the NAV shouldn’t be a major criterion while purchasing a mutual fund unit.

Why Shouldn’t Investors Care About the NAV?

Why should you consider things to remember about mutual fund NAV? Planning to buy a fund because its NAV is lower isn’t the right strategy. The gains from a mutual fund scheme are not affected by lower or higher NAV.

Let’s assume Ms Nandini invests INR 5,000 in two identical funds, but their NAVs are different.

As shown in the table, even though Fund B’s NAV is double that of Fund A, the investment value after one year is the same for both funds because their returns were identical. Therefore, what is important is the fund’s performance or returns. The fund’s performance largely depends on the portfolio quality, investment strategy, fund management, etc., and not NAV.

Fund AFund B
Investment Amount₹5,000₹5,000
NAV at the time of purchase₹50₹100
Units Bought₹100₹50
Returns After 1 Year10%10%
NAV After 1 Year₹55₹110
Investment Value After 1 Year₹5,500₹5,500

What Is the Difference Between NAV and AUM?

Net Asset Value is the difference between the entire value of a fund’s assets and liabilities. It is frequently presented on a per-unit basis. NAV indicates the price at which a fund’s units can be bought and sold. On the other hand, AUM refers to the entire value of assets managed by the fund. AUM is not expressed on a per-unit basis, unlike NAV.

When investing, it is prudent to concentrate on the AUM. It covers all of a mutual fund’s assets and its cash reserves. While NAV is the price per unit of a mutual fund.

A greater AUM suggests a substantial clientele, which increases the mutual fund’s credibility. AUM is also a liquidity metric. A bigger AUM provides a buffer in the event of a large redemption, particularly in overnight and liquid funds. Typically, these funds are susceptible to big redemptions by institutional investors. For these types of funds, a larger AUM indicates a greater capacity to absorb the shock of unloading.

How Do the Sensex and Nifty Affect a Mutual Fund’s NAV Value?

This is dependent on the mutual fund.

Mutual funds invest in a variety of assets. The type of assets owned by a mutual fund determines whether its NAV is affected by the Sensex or Nifty. The extent to which a mutual fund is influenced by the Sensex or Nifty is determined by the type and quantity of assets it holds.

  • Sensex: BSE 30 is another name for Sensex. The Bombay Stock Exchange’s index is a free-float market-weighted stock market index that includes 30 of the largest companies listed on the exchange. These businesses are among the most financially secure in the country.
  • Nifty: Nifty is a free-float market-weighted stock market index of the businesses listed on the National Stock Exchange, similar to the Sensex. Unlike the Sensex, though, Nifty includes 50 of the largest companies belonging to13 different industries.

The impact of Sensex and Nifty on a mutual fund’s NAV is determined by the amount of money invested in firms that are part of the Sensex, Nifty, or both.

Changes in the Sensex or Nifty significantly impact the NAV of large cap mutual funds that invest in the country’s largest corporations.

Multi-cap mutual funds invest in a variety of firms of varying sizes. Changes in the Sensex or Nifty may or may not influence them, depending on the amount of large-cap assets they hold.

Furthermore, the large-cap funds frequently influence the performance of mid-cap and small-cap funds. Therefore, the fluctuations in the Sensex and Nifty may impact the NAV of small-cap mutual funds and mid-cap mutual funds as well.

What is the SIP’s NAV?

SIP NAV is the same as a mutual fund’s NAV. SIP and lump sum are merely two mutual fund investment methods.

Through a Systematic Investment Plan (SIP), you can invest a set amount of money in a mutual fund of your choice every month. Every month, the payment is debited automatically from your account. On the other hand, lumpsum investment is when you invest a significant sum of money in a mutual fund at once.

You can invest in most mutual funds using both SIP and lump sum strategies. The mutual fund characteristics are the same regardless of the strategy you use. The mutual fund’s NAV remains the same for both SIP and lump sum investments.

Conclusion

The above things to remember about mutual fund NAV will clarify the concept of NAV. It helps you differentiate it from a share price. Though NAV might not be a criterion for picking a fund, the NAV movements over time will help you analyse the mutual fund’s performance. Most commonly, investors who invest for a sufficiently long period of time in the mutual funds do not typically monitor daily NAV fluctuations. The majority of investors track the outperformance of a scheme relative to its benchmark index and peers in its category. Such a comparison is helpful in shortlisting a fund as well.

Frequently Asked Questions

If I Buy a Mutual Fund in The Evening, Which NAV Value Is Taken into Account?

The same-day NAV is used if the mutual fund is purchased before 3 p.m. If you buy mutual fund units before 3 p.m. on a working day, you will receive units at the NAV price at the end of that day. If the order is placed post 3 p.m., the NAV at the end of the next business day will be considered for your transaction. Furthermore, on holidays, all orders are processed with the NAV value at the end of the next business day.

If I Sell Mutual Fund Units in The Evening, Which NAV Value Is Taken into Account?

The same principles apply to selling fund units as that to buying them. If you sell units in a mutual fund before 3 p.m. on a working day, you will sell them at the NAV value at the end of that day.
If a sell order is made after 3 p.m., the NAV at the end of the next business day will be used as the transaction’s NAV. Furthermore, on holidays, all selling orders are executed with the NAV value at the end of the next working day.

How Frequently is NAV Updated?

At the end of every working day (when markets close), NAV is updated. Mutual funds update the NAV at the end of each day. SEBI requires mutual funds to update their NAV every day by 9 p.m. Most mutual funds have their own schedule for updating the NAV and AUM. However, they should do it before 9 p.m. The NAV is not updated in real-time due to the difficulty of continuously tracking the value of various assets owned by a mutual fund.

Should I Invest in a High-NAV Mutual Fund?

If the mutual fund’s other attributes are favourable, you should consider investing in it. The before example proved that the NAV value is irrelevant if the mutual fund performs well. The net asset value is not the same as the stock price on the stock exchange. Thus, there’s no need to be concerned about the NAV being overvalued. NAV is not affected by demand. NAV cannot be undervalued or overvalued. In the case of stocks, demand has an impact on the price. The AUM is the only factor that influences the NAV.

Where Can I Find a Mutual Fund’s NAV?

On Scripbox, you can get NAV information of a mutual fund. Additionally, upon opening the fund page, Scripbox provides all fund-related information. Information such as Net Asset Value, Category, Fund Analysis, Assets Under Management, Expense Ratio, Historical NAV, Investment Objective, and Fund Manager.  In addition, the graphical representation of a fund’s NAV will help investors visualize the fund’s growth. The image is straightforward to interpret and comprehend. Furthermore, the fund house also publishes the NAV value every day.

Can The NAV Of a Mutual Fund Fall in Value, Just Like Stocks?

Yes, a mutual fund’s NAV might fluctuate depending on the value of the assets it holds. Mutual funds invest in a variety of financial instruments. These can be company stocks, bonds, and so on. The prices fluctuate over time. If the value of a mutual fund’s assets is lower on any given day than the previous day, the NAV will be lower as well and vice versa.
However, no matter how good a mutual fund is, the NAV will always fluctuate. When the NAV value declines, it is important not to panic and sell mutual fund units. The choice to sell a mutual fund is more challenging and requires a proper strategy.

Should Mutual Fund Investors Be Concerned About the NAV?

No. The NAV of a mutual fund doesn’t have much relevance when picking a fund for investment. NAV is simply the price/ transaction cost for a mutual fund transaction. However, on standalone terms, a high or low NAV does not represent anything valuable for the investors. The investors must focus on the NAV changes over a few years to analyze the performance of the mutual fund scheme.