Net Asset Value

NAV or Net Asset Value is the unit price of a mutual fund scheme. Mutual funds are bought or sold on the basis of NAV. Unlike share prices which changes constantly during the trading hours, the NAV is determined on a daily basis, computed at the end of the day based on closing price of all the securities that the respective mutual fund schemes own after making appropriate adjustments. The expenses (known as TER) of a mutual fund scheme like fund management; administration, distribution etc. are charged proportionately against the assets of the scheme and are adjusted in the scheme NAV.

NAV is basically used as a per-share value calculated for a mutual fund, ETF or close-end fund. NAV has gained popularity to the fund valuation. NAV is compared generally to market capitalisation to find undervalued or overvalued investments

NAV Calculation

A mutual fund or Asset Management Company (AMC) offers a new scheme for subscription through a new fund offering (NFO). In an NFO, the units of a scheme are priced at Rs 10. Let us assume, the AMC mobilizes Rs 1,000 Crores during the NFO from different investors. Since the issue price is fixed at Rs 10 for the NFO subscribers, the AMC allots units to the investors based on the total amount mobilized. In this example, Rs 1,000 Crores is mobilized in the NFO and the NAV is Rs 10. Therefore, the AMC issues 100 Crore units (Rs 1,000 Crores / Rs 10 NAV) and allots proportionately to investors based on their respective investment amounts. So, if you invested Rs 1 lakh in this an NFO, you will be allotted 10,000 units.

The performance of a mutual fund is determined by the NAV differentials between two dates, by the fund investors. To figure out the NAV, the valuation of both liquid and non-liquid assets are considered.