What is net asset value?

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Just like stocks, mutual funds’ units are also traded and just like a stock price, there is a price that represents each unit of a mutual fund. This price is called net asset value or NAV. NAV represents the per share market value of a mutual fund.

How is NAV calculated? What is the importance of NAV? How is it significant in your mutual fund investment? Let’s answer all questions related to NAV in this article.

Calculation of NAV

NAV consists of three components – Total assets, liabilities and the total number of outstanding shares.

There are two kinds of net asset value calculation. They are –

  • Daily net asset valuation 

Here, fund houses calculate the value of NAV after each working day’s market close. They take in all the asset, liability and number of shares changes and update the NAV accordingly.

  • General calculation of net value of assets 

It is the cumulative value of unit prices of all the shares.

In the case of a mutual value, a daily valuation is mostly used and the below formula is used to calculate the NAV –

 Net asset value (NAV) = (Total assets – total liabilities)/ total outstanding shares

In the case of most of the mutual funds in India, NAV starts at Rs. 10 and it grows as the mutual fund grows.

Just like how a stock price works for stock, NAV can be used to analyse and determine the performance of mutual funds.

Now let’s take a deeper look at each of the components of NAV.

Total assets 

Assets are the total value of all the investments of a fund, cash and cash equivalents, receivables and other income like dividends and interest payments. Total assets are calculated at market close each day on the basis of prices of different securities the fund has invested in.

Total liabilities 

This is the total amount of money the fund owed to the lenders and entities plus certain other charges. The liabilities of a mutual fund may also include pending foreign payments.

Various expenses related to the mutual fund like staff salaries, operation expenses, management expenses, and fund manager fees are also included in liabilities.

Just like in the case of total assets, these are also updated after each day at market close.

Total outstanding shares 

This is simply the total number of units the mutual fund has. In the case of open-ended funds, this can regularly increase as the fund allocates more units as per demand. In the case of close-ended funds, where the shareholders trade units within themselves, the number of shares will remain unless the fund opts for a new fund offering or NFO.

NAV vs stock price

The stock price of a company represents the value of its liquid assets. It represents the working capital the company has. At the same time, NAV of a mutual fund includes liabilities as well.

How is NAV significant?

Analysis of NAV is significant in assessing the performance of a fund. Just like a stock price, when the NAV rises, the performance of the mutual fund improves. It is a key tool in identifying how the fund has performed in recent years.

How to find NAV?

Information about NAVs of most mutual funds is readily available on fund or broker websites. You can also refer to the Association of Mutual Funds of India (AMFI) website or go through a factsheet of an MF online to find the same.

NAV is one of the most important information about a mutual fund. Understanding such information is critical before making any investment decision. Make sure you do your research and take expert help if needed before investing.


David Cohen

Rachel Cohen: Rachel is a sustainability consultant who blogs about corporate social responsibility and sustainable business practices.

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