What is NAV in Mutual Funds and How Is It Calculated?

Net Asset Value (NAV) is the “per-unit” value of a mutual fund scheme. It is calculated by dividing the fund’s total market value of assets (arrived at after deducting liabilities and expenses) by the total number of outstanding units. 

NAV represents the value at which mutual fund units are bought or redeemed, subject to applicable rules.

What do you look at to check the performance of the mutual fund you have invested in? Do you look at its current NAV vs the NAV you invested in?

Yes, looking at a fund’s NAV (Net Asset Value) can help you understand quite a few aspects of the mutual fund you have invested in.

Let’s learn about these aspects in this blog.

NAV stands for Net Asset Value. It is the value of one unit of the mutual fund. The NAV of a mutual fund is calculated based on the closing price of all assets it manages. Therefore, it is calculated at the end of the day.

Mutual fund houses publish the NAV of the fund by 11.00 p.m. daily except for few schemes as per SEBI’s regulation from time to time.

Net asset value is the value of all assets of the mutual fund minus the value of all its liabilities divided by the outstanding units as on that day.

Let us see what the assets and liabilities of a mutual fund are.

Assets

• Securities: The financial securities or instruments that it manages are assets of a mutual fund. Examples of such securities are stocks, bonds, government securities and commodities..
• Dividends: Dividends from the underlying securities held by the mutual funds are assets of the mutual fund.
• Liquid Assets: Mutual funds hold a portion of their total holdings as liquid assets, cash and cash equivalents. Typically, these can be held as balances in a bank account, money market instruments or very short-term bonds. These are also assets of the mutual fund.
• Outstanding receivables: Outstanding receivables are typically, the collection / subscription done by investors which are not yet received in the bank account or the sale consideration to be received as by the market cycle for sale of investments.

Liabilities

• Expenses: A mutual fund is managed by an Asset Management Company who charges a fee for the various services provided by them to the mutual fund. Also, other expenses viz. registrar charges, custodian charges, bank charges, printing and stationery, sales and marketing expenses, audit fees, brokerage etc. are paid to various service providers. These expenses are capped as a percentage of the net assets of a fund as per SEBI regulations and as disclosed in the scheme document. These expenses together are called “the expense ratio” of the fund.
• Outstanding payments: Outstanding payments are typically for the redemption requests received from investors which are paid as per the terms laid down in the scheme document or outstanding borrowing amount payable or amount payable for purchase of investments.

NAV Calculation

The NAV of a mutual fund is calculated as follows.

• NAV = (Total assets of the mutual fund − Total liabilities of the mutual fund) / Number of outstanding units of the mutual fund

• Determines daily portfolio value of investors

The NAV of a mutual fund is published by the fund house on every business day based on the closing price of the underlying assets on the previous business day. Investors who hold units of mutual funds in their portfolio calculate the value of their holdings in a mutual fund by multiplying the NAV with the number of units they hold.

• Determines how many units are bought or sold

You also buy units of a mutual fund based on its NAV. For example, if you have to invest ₹5,000/- in a mutual fund and its NAV is 500 today, you end up buying 10 units of the mutual fund, subject to some statutory / regulatory charges.

Just as a stock can be bought at its current market price, a mutual fund can be bought at its NAV. A stock is considered a value-buying opportunity if its price is low compared to its estimated intrinsic value.

However, a lower or higher NAV might not be a suitable indicator while comparing different mutual funds.

The true value of a mutual fund lies in the intrinsic value of the securities it holds. Also, most securities purchased by a mutual fund are likely from the secondary market, i.e., non-IPO securities that have been changing hands daily.

The NAV of a mutual fund changes as the value of its underlying assets does. Therefore, it can be used to analyse how a fund has performed over a particular period.

Looking at the assets under management, expense ratio, asset class, the composition of the portfolio, past performance of the mutual fund, the mutual fund house and the mutual fund manager may be better while evaluating a mutual fund than simply looking at its NAV.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com.

1. What is NAV in a mutual fund with an example?

NAV (Net Asset Value) is the value of one unit of a mutual fund scheme. For example, suppose a scheme has total “net assets” worth ₹50 crore and its 5 crore units are outstanding. Now, its NAV would be ₹10 per unit (₹50 crore5 crore). 

2. What are Net Assets in a mutual fund NAV?

Net assets are the total value of assets a mutual fund owns after deducting its liabilities and expenses payable. These assets may include stocks, bonds, cash, and other investments held by the scheme.

3. How to calculate NAV in a mutual fund?

NAV is calculated by subtracting a mutual fund’s total liabilities from the market value of its assets and then dividing the result by the total number of outstanding units. The basic formula is: 

Additionally, the calculation also accounts for the fund’s expenses, such as management and operating costs, along with its outstanding liabilities. 

4. What is the current NAV in a mutual fund?

The current NAV is the latest declared per-unit value of a mutual fund scheme. It changes as the market value of the securities and other assets held by the scheme changes. The latest NAV can usually be checked on the mutual funds  website, and AMFI website

5. Is the mutual fund NAV calculated daily?

Yes, mutual fund NAV is generally calculated and declared at the end of each business day. The calculation reflects the applicable closing market values of the securities held by the mutual fund scheme . 

However, the exact frequency and applicable rules can vary for certain types of mutual fund schemes.

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