What is NAV of mutual fund

NAV of Mutual Fund or the Net Asset Value is the unit price of a mutual fund scheme. Mutual funds are bought or sold on the basis of NAV. Unlike share prices which changes constantly during the trading hours, the NAV of mutual fund is determined on a daily basis, computed at the end of the market closure based on closing price of all the securities that the mutual fund scheme owns after making appropriate adjustments.

Read what are mutual funds in India?

Investors should note that, the expenses of a mutual fund scheme like fund management, administration, distribution etc. are charged proportionately against the assets of the scheme and are adjusted in the NAV of the mutual fund scheme. The NAV of mutual fund that you see in the public domain is post adjustment of these expenses.

To see the latest NAV of Mutual Fund schemes you can visit this website http://www.amfiindia.com/net-asset-value

Mutual fund scheme units are priced at par value or face value which is usually at Rs 10, at the time of the New Funds Offer (NFO). The scheme NAV goes up or down depending on the closing market value of the respective securities held in the portfolio. Schemes which are older are likely to have higher NAVs compared to the schemes that are new because the NAVs of older schemes have had more time to grow.

Now that we know what is the meaning of NAV in Mutual Fund, let us also know few common misconceptions about NAVs in mutual fund. Read more about common misconceptions about Mutual Fund NAVs

  • Low NAVs are not necessarily cheap and high NAVs are not necessarily expensive. The NAV is derived from the value of the underlying securities of the scheme and the accumulated profit made by the scheme since inception. The NAV of a scheme by itself should not be a consideration in investment decisions.
  • Some investors think that NFOs are cheap because they are issued at par value (Rs 10). As mentioned earlier, the par value of a mutual fund unit is derived from the value of the underlying securities and the accumulated profits since inception. Two different mutual fund schemes may have exactly the same portfolio of securities and yet one may be offered at par value (NAV of Rs 10)through a new fund offer (NFO) while the NAV of the other scheme might be more than 200 or so; the difference in price notwithstanding the intrinsic value of the both the schemes is exactly the same.
  • Schemes which pay high dividends do not necessarily give higher returns. Investors should know that, as per SEBI regulations, dividends can be paid only from the profits made by schemes or from the scheme reserves. Dividends are adjusted from the NAV of the mutual fund scheme.

    For example, if the NAV of a scheme is Rs 50 and the scheme declares a dividend of Rs 5, the Net Asset Value (ex-dividend) will fall to Rs 45 just after the dividend is declared. There is no advantage in investing in schemes which pay dividends unless you are looking for regular return from your mutual fund investments. Therefore, if you are interested in total returns the growth option is better as you benefit from power of compounding.

    See the list of top performing mutual funds in India

NAVof a mutual fund should not be the criteria of selecting a mutual fund scheme. The track record of the scheme and the ability of its fund manager in terms of delivering superior risk adjusted returns can only determine whether the scheme will give good returns in the future or not.

Now that you know what is NAV in mutual fund, you must also know what are the benefits of investing in Mutual Funds in India