What is Mutual Fund NAV? How is NAV calculated? Should you avoid Funds with High NAV?

What is Mutual Fund NAV? How is NAV calculated? Should you avoid Funds with High NAV?

Roboadviso     Mutual Funds     Posted On, Fri 4th August, 2017     No comments

mutual funds NAV calculation

What is Mutual Fund NAV?

The NAV or Net Asset Value of a mutual fund refers to the total value of assets, net of expenses, of the fund’s single unit which gets calculated by the AMC or Asset Management Company at the end of each business day.

The NAV of a fund on a specific date is indicative of the realizable value which an investor will receive for each unit held by him/her in case the scheme gets liquidated on that particular date.

In simple terms, it can be stated that NAV is the price per unit of the fund. Just like stock shares have a price, mutual funds have a net asset value. Thus, investors who wish to buy one share/unit of a mutual fund can buy it at the NAV price. A major difference between stock prices and mutual fund NAV is that unlike stock prices that fluctuate all through the day, NAV stays the same till the end of the trading day.

The net asset value gets updated at the end of every business day. Thus, investors who buy a fund at its listed NAV, that purchase NAV price is actually the NAV of the fund updated on the previous business day’s close. The purchase price of the mutual fund that investors buy today will be determined after the NAV is updated after the close of the current business day. Due to this, buyers are usually unaware about the precise NAV price when buying or selling mutual fund units.

For example, if you wish to buy XYZ mutual fund for INR 10,000 and the NAV of previous day’s close was INR 10, then it means that you will buy 1000 units. However, if there is an increase in the NAV price of the fund on the day you buy it, then it would mean that you will pay more than INR 10,000 for the 1000 shares. This is the reason why, the option of buying or selling in Rupees instead of units is also available.

How is NAV calculated?

The NAV of a mutual fund is the cost or price at which the shares of a fund are sold or purchased. It is in reality the market value of the mutual fund after its liabilities have been deducted.

The portfolio value of all the shares of a mutual fund are calculated every trading day and all the expenses are then deducted from it. The result in later divided by the sum of all the shares and the end value is the net asset value. This is the reason why NAV is also occasionally referred to as the book value or the net book value.

Since the market value of a mutual fund’s units are indicated by its NAV, investors can use it to keep themselves updated about the fund’s performance. The real increase in their investment value can be calculated by investors via determination of the percentage rise in the NAV of the fund.

Provided below is information on how the NAV is calculated.

The assets of mutual fund typically get classified under two groups, i.e., securities and cash. Stocks and bonds make up the securities part. Hence the total value of assets of a mutual fund will include its bonds, cash, and stocks at market value. The market value of debentures and stocks is generally the closing price on the exchange where they are listed. Accrued interest and dividends as well as liquid assets also get added to the total assets. Liabilities such as cash owed to creditors and other accrued expenses are also included.

Thus the formula for calculating NAV is:

Net Asset Value (NAV) = (Assets – Debts) / (Number of Outstanding units)


  • Assets = Market value of mutual fund investments + Receivables + Accrued Income


  • Debts = Liabilities + Accrued Expenses

The NAV of a mutual fund is usually calculated by some accounting firms or AMCs. Since, mutual funds are dependent on performance in the stock markets, the NAV is declared after the exchange has closed for the day. As per SEBI guidelines, it is required of all mutual funds to publish their net asset value at every trading day.

It is important to note that the expense ratio of a mutual fund is also subtracted to get the NAV. The expense ratio refers to the total expenses incurred by the fund yearly, including management fees, operating costs, marketing and distribution expenses, custodian fees, transfer agent fees, and audit fees.

Should you avoid Funds with Higher NAVs?

There are many questions that old as well as first time investors have with regards to the NAV, such as: Since more units can be purchased when NAV is lower, would that be a better inexpensive option? Is investment in mutual funds with low NAV a better option that investing in fund with a higher net asset value? Do we need to avoid mutual funds with higher NAV?

All the above questions can be answered with fact that low or high NAV of a mutual fund is irrelevant to returns of the fund.

The above can be explained thus:

An unchanged total investment between 2 mutual funds with the same portfolios only mean that a high NAV will lead to lower number of shares being held, while a low NAV will lead to increased number of shares being held by the investor. However, in both scenarios, the applicable net asset value and the product of the number of fund shares, remains identical. It is thus the stocks in a fund portfolio that help establish the fund’s returns while the NAV value remains extraneous.

When those shares are sold, then the subsequent return will be similar to that of another fund with similar performance. The price of a mutual fund with regards to its NAV has little to do with its returns. The main selling point of a fund is its performance.

For Example: Individuals who wish to invest INR 10,000 in a mutual fund can choose between two schemes with identical portfolios. The NAV of one of the schemes (X) will however be INR 10, while the NAV of the other scheme (Y) will be INR 50. Now, you can get 1000 shares of Scheme X or 200 units of Scheme Y.

  • Since the portfolio of both the funds is the same, both schemes will grow equally. Suppose they grew by about 25 percent for the year. Then after 1 year, the NAV will be INR 62.50 for Scheme Y and INR 12.50 for Scheme X. For the mutual fund X, the value of the investment will thus be (1000 x 12.50) = INR 12,500, while it will be (200 x 62.5) = INR 12,500 for Scheme Y.
  • Thus irrespective of a high or low NAV, the returns stay the same for both mutual funds with same portfolio.

It can thus be concluded that the Net Asset Value makes no difference to a mutual fund’s returns, from any angle. Investors need to make judgments about different schemes as per their performance. And the best way to check a fund’s performance is by comparing the returns over a set period of time.

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