The formula for Net Asset Value is straightforward: NAV = (Total Value of Assets - Liabilities) / Total Outstanding Units. For example, if a mutual fu... In this detailed guide, we will break down the core parameters, options, and advantages for retail investors in India.
- Unit Price of a Fund: Net Asset Value (NAV) is the price of a single unit of a mutual fund scheme. It is the price at which you buy or sell units.
- Daily Valuation: The NAV is updated at the end of every business day (usually by 11:00 PM) based on the closing market price of all stocks owned by the fund.
- The Assets minus Liabilities Formula: Calculated by dividing the net market value of the fund's assets (stocks, bonds, cash) minus liabilities by total outstanding units.
How is NAV Calculated?
The formula for Net Asset Value is straightforward: NAV = (Total Value of Assets - Liabilities) / Total Outstanding Units. For example, if a mutual fund owns stocks worth Rs. 100 Crores, has liabilities (like fund management expenses) of Rs. 2 Crores, and has 1 Crore units outstanding, the NAV will be: (100 - 2) / 1 = Rs. 98. This calculation is performed daily, ensuring investors get a fair price.
The Low NAV Myth: Is Rs. 10 NAV Better than Rs. 100?
A very common myth among retail investors is that a fund with a NAV of Rs. 10 is 'cheaper' and better than a fund with a NAV of Rs. 100, because they get more units. This is mathematically incorrect. If you invest Rs. 10,000, you can buy 1,000 units of the Rs. 10 fund, or 100 units of the Rs. 100 fund. If both portfolios grow by 10%, your investment value in both cases becomes Rs. 11,000. NAV does not reflect the valuation or performance of the fund.
Cut-Off Timings and NAV Allocation
When you buy or sell mutual fund units, the NAV you get depends on the transaction time. Under current SEBI rules, the cut-off time is 3:00 PM. If your payment reaches the mutual fund house bank account before 3:00 PM on a working day, you get the NAV of that day. If you pay after 3:00 PM, you get the next day's NAV. This rule prevents trading on market news after close.
| Parameter | Fund X | Fund Y |
|---|---|---|
| Investment Amount | Rs. 10,000 | Rs. 10,000 |
| NAV | Rs. 10 | Rs. 100 |
| Units Allocated | 1,000 Units | 100 Units |
| Portfolio Growth (15%) | NAV becomes Rs. 11.5 (Value: Rs. 11,500) | NAV becomes Rs. 115 (Value: Rs. 11,500) |