How to Interpret Net Asset Value of a Mutual Fund?

The mutual fund universe is a dense and ever-changing one. However, though its trajectory might seem random at first, it is governed by a set of metrics that you can analyse over time. One of these metrics is the NAV (Net Asset Value) of the fund.

The NAV is the fund’s market value per unit that you hold. It is the price at which the unit is sold or bought. It is an important determinant of the fund’s overall growth, though not the only one.

Understanding NAV…

  • The NAV of the mutual fund is a summation of the total market value of all the various securities held in the investor portfolio. It can also include cash.
  • From the sum thus added, the liabilities are deducted, and the resulting sum is then divided by the total number of units still held.
  • This final figure is the latest NAV of the mutual funds that you own.
  • The NAV is known as the ‘book value’ of the fund and it changes from one business day to another. Your fund manager studies the NAV in detail before analysing the rest of the portfolio.
  • You can view the latest NAV on mutual funds on the fund house’s website.

Leading mutual fund houses in India have made it quite easy for investors to track the latest NAVs online. You only need to enter the details of the open ended/closed ended/matured MF, the scheme and plan therein, the date of issuance and closure, etc. The website then shows the NAV online. This data helps you decide on planning a particular fund over another, since it helps you compare the fund performance based on the NAV.

You can even check the dividend history of the scheme or plan on the fund house’s website. Input the scheme and plan type, whether it is open ended/closed ended/matured, and its starting and closing date to know the latest NAV of the mutual fund. You can also check the dividend history in the same manner. NAVs online make it easier to capture the fund workings and track its performance over a period of time.

However, NAVs are different from share prices…

NAVs are not the same as share prices. The latter has a component of market price as well as book value. The share price is booked on the stock exchange, and it is also determined by the future performance of the company and hence, the demand for its shares. Meanwhile, there is no market price component tacked with a mutual fund, so when you buy the fund you do so at the latest NAVs of the mutual fund, i.e. the book value.

Another factor to consider apart from NAVs is the fund performance over a certain period of time, say 5 years or 10 years. This helps you gauge the returns on the fund.

How to Interpret Net Asset Value of a Mutual Fund?
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