What Is Mutual Fund NAV?
Mutual fund net asset value (NAV) represents a fund's per share market value. It is the price at which investors buy (bid price) fund shares from a fund company and sell them (redemption price) to a fund company.
A fund's NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, less any liabilities, by the number of shares outstanding.
Key Takeaways
- Net asset value (NAV) represents a fund's per-share intrinsic value.
- It is similar in some ways to the book value of a company.
- NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, minus any liabilities, by the number of outstanding shares.
- The NAV calculation is important because it tells us how much one share of the fund should be worth.
- The actual market value of a fund may differ slightly from its NAV, which may represent a buying or selling opportunity.
Understanding Mutual Fund NAV
A NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio's securities. The formula for a mutual fund's NAV calculation is straightforward:
NAV = (Assets - Liabilities) / Total number of outstanding shares
For example, let's say a mutual fund has $45 million invested in securities and $5 million in cash for total assets of $50 million. The fund has liabilities of $10 million. As a result, the fund would have a total value of $40 million.
The total value figure is important to investors because it is from here that the price per unit of a fund can be calculated. By dividing the total value of a fund by the number of outstanding units, you are left with the price per unit—the form of measurement in which NAV is usually quoted. As such, the price of a mutual fund is updated around the same time as the NAVPS.
Building on our previous example, if the fund had 4 million shares outstanding, the price-per-share value would be $40 million divided by 4 million, which equals a NAV of $10 per share.
To compute a fund's daily NAV, the values of assets and liabilities are computed at the end of each trading day.
Mutual Fund NAV vs. Stock Prices
The NAV pricing system for the trading of shares of mutual funds differs significantly from that of common stocks or equities, which are issued by companies and listed on a stock exchange.
A company issues a finite number of equity shares through an initial public offering (IPO), and possibly subsequent additional offerings, which are then traded on exchanges such as the New York Stock Exchange (NYSE). The prices of stocks are set by market forces or the supply and demand for the shares. The value or pricing system for stocks is based solely on market demand.
On the other hand, a mutual fund's value is determined by how much is invested in the fund as well as the costs to run it, and its outstanding shares. However, the NAV doesn't provide a performance metric for the fund. Because mutual funds distribute virtually all their income and realized capital gains to fund shareholders, a mutual fund's NAV is relatively unimportant in gauging a fund's performance. Instead, a mutual fund is best judged by its total return, which includes how well the underlying securities have performed as well as any dividends paid.
Advisor Insight
Joe Allaria, CFP®
CarsonAllaria Wealth Management, Glen Carbon, IL.
The NAV is simply the price per share of the mutual fund. It will not change throughout the day like a stock price; it updates at the end of each trading day. So, a listed NAV price is actually the price as of yesterday's close. But an order you put in will be based on the updated NAV at the end of the current trading day. As a result, you may not know the exact NAV when you buy or sell shares.
For example, if you want to buy $10,000 worth of mutual fund ABCDX, and the NAV as of yesterday's close was $100, that would mean you purchase 100 shares. However, if the NAV increases drastically on the day you made your purchase, you may end up with fewer than 100 shares.
What Does NAV Mean in Finance?
NAV stands for net asset value. In finance, it is used to evaluate the value of a firm or an investment fund by subtracting its liabilities from assets.
Where Do You Find the Net Asset Value per Share of a Mutual Fund?
The net asset value per share (NAVPS) of a fund is often reported along with its price quote with a broker or online financial portal. This value will often be close to, but slightly different from, the fund's actual market price since NAVPS is calculated once per day, while the assets held by a fund may change in price throughout the day.
What Causes a Change in the Net Asset Value of a Mutual Fund?
When the holdings in a fund's portfolio change, the value of the assets of the fund will also change, leading to a change in NAV. Additionally, NAV can change if the fund's liabilities change.
Is a High NAV Good or Bad?
A high NAV indicates nothing on its own, except that the fund holds a large value of assets. What is important is to compare things on a relative basis, such as the NAV of one growth fund to another. It is also important to compare a fund's NAV to its market price. If the NAV is much higher than the current market price, it may signal a good buying opportunity.
Is NAV Same As Book Value (BV)?
Book value is used to evaluate the intrinsic value of a particular company, by subtracting the firm's liabilities from its assets found on its balance sheet. This is a similar calculation to a fund's NAV, but a fund's assets are themselves shares of companies (in many instances).
FAQs
Net asset value (NAV) represents a fund's per-share intrinsic value. It is similar in some ways to the book value of a company. NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, minus any liabilities, by the number of outstanding shares.
How is the NAV of a mutual fund calculated? ›
For example, if the market value of securities of a mutual fund scheme is ₹200 lakh and the mutual fund has issued 10 lakh units of ₹ 10 each to the investors, then the NAV per unit of the fund is ₹ 20 (i.e., ₹200 lakh/10 lakh).
What is a good NAV for a mutual fund? ›
No specific value can be considered a good net asset value for mutual funds, depending on the investment objective, fund category, and investment strategy. Generally, a good NAV is consistent with the investment objectives and aligns with the investor's risk tolerance, investment horizon, and financial goals.
What is NAV calculator? ›
Net Asset Value (NAV) is the dollar value of a single mutual fund share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. It is calculated at the end of each business day.
What does NAV mean and when is it calculated? ›
"Net asset value," or "NAV," of an investment company is the company's total assets minus its total liabilities. For example, if an investment company has securities and other assets worth $100 million and has liabilities of $10 million, the investment company's NAV will be $90 million.
What is the NAV rule for mutual funds? ›
If the funds are received before 3:00 P.M. on the scheduled SIP date, the NAV of that day is applied. However, if the funds are credited after 3:00 P.M., the NAV of the next business day is applied when the funds are received before the cut-off time.
What is the formula for mutual funds? ›
For instance, if you invest Rs 4,000 monthly for 24 months, with an expected return rate of 12% (i.e., 0.01 as the periodic interest rate), the future value can be calculated as 4000 x [(1+0.01)^24 – 1] * (1+0.01)/0.01, resulting in approximately Rs 108,316 at maturity.
Should I buy when the NAV is high or low? ›
Dispelling Common NAV Myths
It might indicate that the fund has been operating for a longer period of time or that the fund has previously performed well. However, it has no bearing on how the fund will perform in the future. Similarly, some investors feel that investing in a fund with a lower NAV is the best option.
How to track NAV of mutual fund? ›
Every mutual fund house publishes the Net Asset Value (NAV) of each scheme daily. The NAV is available on the respective fund house website as well as on the AMFI website. One can check the net asset value (NAV) of a fund through Scripbox. Anyone can compare mutual funds and find the fund they wish to know the NAV.
What's the best indicator of a successful mutual fund? ›
Common technical indicators that can help evaluate a mutual fund as a good or bad investment include trendlines, moving averages, the relative strength index (RSI), support and resistance levels, and chart formations.
The majority of mutual funds can be classified into four primary categories: Bond funds, Money Market funds, Target date funds, and Stock funds. Each category possesses distinct characteristics, risks, and potential returns. Below is a comprehensive enumeration of mutual fund types.
How to calculate NAV of mutual fund in Excel? ›
To calculate NAV in Excel, you can use a simple formula where you input the values for total assets, total liabilities, and total units outstanding. For example, if cell A1 contains total assets, B1 contains total liabilities, and C1 contains total units outstanding, the formula in Excel would be = (A1 - B1) / C1.
What is the cut-off time for mutual fund NAV? ›
For all the purchase transactions, the cut-off time on any trading day is 2:30 p.m. If you wish to invest in a fund at the current NAV, you must submit your application to AMCs or RTAs (Asset Management Companies or Registrar and Transfer Agents) before the clock strikes 2:30 p.m.
What is an example of NAV? ›
The NAV of every mutual fund scheme is declared every day. This is because the value of the assets can change on each business day. For example, if a mutual fund scheme has an AUM of Rs 100 Cr, these assets' value may become Rs 120 Cr tomorrow.
What is a good NAV value? ›
There's no single "good" NAV for a mutual fund. A high NAV simply reflects the total value of the fund's assets per unit. Focus on the fund's performance history, expense ratio, and alignment with your goals.
Does mutual fund NAV split? ›
The price of a mutual fund share is called its net asset value (NAV) per share and represents the total value of the fund's portfolio, minus any liabilities, divided by the number of shares outstanding. Splits are much more common in individual stocks than in mutual funds, with the most common splits being 2:1 or 3:1.
How often does a mutual fund calculate NAV? ›
Key Takeaways
NAV is calculated at the end of each business day using the closing market prices of the portfolio's securities.
Is a higher or lower NAV better? ›
The notion that a Mutual Fund's performance is inversely related to its NAV is a misconception. NAV is simply the per unit value of the fund and it does not reflect its quality or potential. For example, a fund with an NAV of Rs 22 is not necessarily superior or inferior to one with an NAV of Rs 85.
How to know current NAV of mutual fund? ›
Every mutual fund house publishes the Net Asset Value (NAV) of each scheme daily. The NAV is available on the respective fund house website as well as on the AMFI website. One can check the net asset value (NAV) of a fund through Scripbox. Anyone can compare mutual funds and find the fund they wish to know the NAV.
How does the NAV of a mutual fund change? ›
NAV is updated at the end of every working day. The NAV is updated by mutual funds at the end of every day. SEBI mandates mutual funds to update the NAV by 9 pm every day. Most mutual funds update the NAV have their own specific time to update the AUM.
