Net asset value (NAV) is the price per unit of a mutual fund scheme. This value influences the buying and selling of mutual funds in India. NAV is different from share prices which keep changing throughout the trading hours. The net asset value, instead, is calculated daily and computed after making suitable adjustments at the day’s end as per the closing price of the securities owned by the respective schemes.
How is NAV calculated?
Net asset value is determined using a specific formula that is:
NAV = (Overall assets – total liabilities)/ total number of outstanding shares
This is how NAV is calculated.
Sometimes, when you calculate it manually, you may get errors in results or find it time-consuming. So, it is always a better idea to use an online NAV calculator on the website or app of your asset management company. Just make sure to enter the necessary values correctly so the tool can give you accurate results. Since it works digitally and has the formula set in its system, it auto-calculates instantly and saves time and effort.
Why do you need to know the net value of an asset?
Some investors mistake in thinking that the NAV and the price of the asset’s equity share are the same. But they are not.
The liquid assets of a fund house are solely taken into account to find out the price of equity shares. But how is NAV calculated? By considering the values of both liquid and non-liquid assets.
While the working capital of a company is shown by total equities, the NAV tells you about the total monetary worth of the company. So, whether you choose to invest in mutual funds via a systematic investment plan (SIP) or otherwise, it is important to first know the NAV. This can help you make an informed decision about the suitable fund you should invest in.
Can net asset value tell you about a fund’s performance?
Investors often assume that a mutual fund with a lower NAV is a cheaper and better investment option. Although it can be cheaper, you never know whether it is a good investment option. NAV only helps you understand how a fund performs daily. But you need to consider other factors to understand the fund’s overall performance.
First, after starting to invest in an SIP fund, you may want to gradually step up your investment. Then you can use an SIP calculator with an annual increase to decide a suitable amount by which you should increase your investment annually. Accordingly, the calculator will show the estimated returns.
Thus, you need to keep checking your returns and evaluate the amount by which your investment appreciates. Only then, you can understand how well your chosen fund scheme is performing. The historical performance of the fund can, on the other hand, give you insight into its past performance.
Now that you know how NAV is calculated and what else to consider to understand your fund’s overall performance, use the information to make informed investment decisions.
