Investing in mutual funds is considered to be one of the most effective ways to grow wealth in India. When investing in mutual funds, investors must consider the net asset value (NAV) of a mutual fund scheme.
What you need to know about mutual fund NAVs
- A mutual fund NAV is the price of one unit of a mutual fund scheme
While the NAV is the price of one unit of a mutual fund scheme, the AUM (Assets under management) of a scheme represents the total assets that the mutual fund scheme controls or manages. AUM is the cumulative market value of all the assets such as investments like stocks, bonds, and other securities. NAV, on the other hand, is the per-unit value that indicates how much one unit of the mutual fund scheme is worth.
- NAV is one of the major factors to be considered before investing in a mutual fund
While past performance and the size of the assets under management (AUM) are important factors, the NAV reflects the mutual fund scheme’s current worth. It help investors monitor the performance of their investment. Investors should assess a mutual fund’s NAV in the context of other factors like the scheme’s previous performance and AUM size before they invest in a mutual fund.
- Mutual fund houses update NAVs daily
Mutual fund houses update NAVs of their schemes at the end of every working day. The exact time when NAVs are updated varies from one mutual fund house to another. This daily update ensures that the NAV reflects the latest market conditions.
- A mutual fund scheme’s NAV can change based on changes in the value of its underlying assets
The NAV of a mutual fund scheme is directly tied to the value of the securities and assets within the fund’s portfolio. As the value of these assets fluctuates, the NAV will change accordingly. This feature reflects the real-time impact of market movements on the fund’s overall worth.
Calculating the NAV of a mutual fund scheme
Mutual fund houses calculate the net asset value of a fund by dividing the total value of all securities and cash by the number of outstanding shares:
NAV of a mutual fund = (Assets – Liabilities) / Total number of outstanding shares
A high NAV does not mean that the fund is more valuable or performing better than a fund with a lower NAV. A high NAV may result from a prolonged period of strong performance and growth.
Investors must analyse NAVs in conjunction with other factors like the fund’s past performance, assets under management, and investment objectives. NAVs can change daily based on a fund’s underlying asset values, and a high NAV does not necessarily indicate a superior investment opportunity. Investors can make informed decisions and achieve their financial goals by incorporating the NAV analysis into their investment strategy.
