Everything About Mutual Fund NAV

Just like every equity share has a market price, mutual fund schemes have NAVs (Net Asset Values). If you want to purchase one share, you'll have to pay the market price to the seller. Similarly, if you want to purchase one mutual fund scheme unit, you need to pay its current NAV. But the similarities between the market price of a share and the NAV of mutual funds end here.While both are per unit prices, their working and calculations are very different. If you are planning to invest in mutual funds, it’d be wise to understand the concept of NAV. Take a look-

As mentioned above, NAV is the price an investor pays for purchasing one unit of a mutual fund scheme. As you might know, mutual funds are sold in units. So, if you want to buy 100 units of a mutual fund scheme with a NAV of Rs. 50, you'll have to invest Rs. 5,000.Mutual funds are launched through NFOs (New Fund Offers). In most cases, the NFO price of mutual funds is Rs. 10. The money pooled from investors during the NFO is then used for purchasing securities, such as equity shares, bonds, etc. As the value of the assets grows, so does the NAV of the scheme.

A mutual fund scheme's NAV determines its total cost. It is calculated by deducting the liabilities of a mutual fund scheme from the total assets and then dividing the number by the total number of units. The formula for the same is as follows- NAV = (Assets-Liabilities) / Total Number of Units For most open-ended schemes, the NAV is calculated daily. However, there are schemes in which the NAV is calculated on a fortnightly or weekly basis. You can check the prospectus of the scheme you are interested in to know more about the same.

It is very common for beginners to believe that a mutual fund scheme with a NAV of Rs. 100 is expensive than a scheme with a NAV of Rs. 50. But this is not the case.As discussed above, NAV applicable for MF purchase grows as per the growth of the assets held by the scheme. For instance, a scheme that has been around for 10 years will mostly have a higher NAV. Now, if there is another scheme with the same assets in its portfolio but only launched last year, its NAV might be lower than the other scheme.But ultimately, as both funds have similar assets in their portfolios, they will deliver almost similar returns.

As a new mutual fund investor, it is essential to understand the concept of NAVs. But when it comes to selecting a mutual fund scheme for your investment, there are other factors such as performance consistency, beta, absolute and relative returns, total AUM, and reputation of the AMC that are more important than the NAV.Focus on your investment objectives and risk appetite to ensure that you select a mutual fund that aligns with your investor profile.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.