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.

    • Related Articles

    • How do mutual funds generate returns?

      How Do Mutual Funds Generate Returns? A Beginner-Friendly Guide Mutual funds are one of the most accessible and efficient ways to grow wealth in India. But how do they actually make you money? Let’s understand this step-by-step: 1. Where Does Your ...

    • What is the difference between open-ended and closed-ended mutual funds?

      Open-Ended vs Closed-Ended Mutual Funds: What’s the Difference? Mutual funds in India are categorized into open-ended and closed-ended schemes based on their structure. The key distinction lies in liquidity, availability, and redemption flexibility. ...

    • How does the mutual fund industry work in India?

      The mutual fund industry in India is a well-regulated ecosystem that pools money from investors and invests it in various financial instruments such as stocks, bonds, money market instruments, and other securities. It allows investors to participate ...

    • What is an Asset Management Company (AMC)?

      An Asset Management Company (AMC) is a financial institution that manages pooled funds from multiple investors, investing them in a diversified portfolio of assets such as stocks, bonds, and other securities, with the aim of generating optimal ...

    • What is an Expense Ratio in mutual funds?

      What is the Expense Ratio in Mutual Funds? The Expense Ratio is the annual fee charged by a mutual fund to cover its operational costs. These costs include fund management fees, administrative expenses, registrar and transfer agent fees, distribution ...