What is Net Asset Value (NAV) in mutual funds?

What is Net Asset Value (NAV) in mutual funds?

What is NAV in Mutual Funds?

NAV (Net Asset Value) is the per-unit market value of a mutual fund scheme. It represents the price at which investors buy or sell mutual fund units from an AMC (Asset Management Company) on any given business day. In simple terms, it reflects the current worth of one unit of the fund.

How is NAV Calculated?

Assets include:

    • Equity shares, bonds, money market instruments

    • Dividends receivable

    • Cash & equivalents

Liabilities include:

    • Fund management expenses

    • Administrative costs

    • Other pending payables

  1. Declared Daily: AMCs publish NAVs every business day after 9 PM, as mandated by SEBI regulations. It ensures transparency and standardization.

  2. Crucial for Purchase & Redemption: For lump sum investments, NAV determines how many units you get. For SIP, the NAV on the debit day decides the unit allocation.

  3. Not an Indicator of Fund Performance: A low NAV doesn’t mean a cheaper or better fund, nor does a high NAV mean it's overvalued. Returns are relative to the NAV movement over time.

  4. Applicable NAV Rules (As per SEBI): Cut-off time: 3 PM for equity and hybrid funds. NAV allotment depends on fund receipt of funds and application, not just time of order.

  5. Impact of Market Movements: Equity-heavy fund NAVs fluctuate with market conditions. Debt fund NAVs are influenced by interest rate changes and credit risks.

  6. Taxation Not Based on NAV: Gains are taxed based on capital appreciation, not NAV itself. But tracking NAV helps you monitor when to exit or switch.

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