Mutual Funds Investment

A Pocket Guide on Net Asset Value

When we look into Mutual Funds Investment, Net Asset Value emerges as not just a starting point of learning how to invest in mutual funds but also a measure that helps investors judge whether or not to invest in a mutual fund.

In this article, we will be looking into the concept of Net Asset Value in its entirety.

Definition of NAV or Net Asset Value

What Is NAV – Net Asset Value?

NAV or Net Asset Value in terms of Mutual Funds or SIPs is a number that shows the per-share market value of a fund. NAV is the amount at which the investors buy a fund and also a price point at which they sell the fund.

How to Calculate the Net Asset Value

Calculation of a Mutual Fund’s NAV is actually a very simple process, something even a newbie investor can touch base with. All you have to do is deduct the amount of fund’s liabilities from the amount of fund’s assets. Next, the value you now derive at should be divided by the total number of shares that are outstanding.

To find an estimate of the total asset value of the fund, you will have to add market value of the securities that the fund holds with the fund’s cash equivalents and cash figures.

For example:

Suppose there is a Mutual Fund with Rs.14 crore in liabilities, Rs.14 crore cash, and Rs.70 crore securities and comes with 10 lakh shares in outstanding. In a case like this, the calculation would look something like this –

(Rs.70 crore + Rs.14 crore – Rs.14 crore) / 10 lakh = Rs.700

Meaning, the price per share of the fund is Rs.700.

Usually, the NAV of an exchange traded fund or Mutual Funds changes on an everyday basis as the assets and liabilities of the funds are in an all-time flux. Likewise, the total number of shares which are outstanding also might vary on a day to day basis, with investors buying or redeeming shares in the market.

The point we are trying to make here is that the net asset value of a fund might be Rs.1,400 per share on day one and might reach Rs.1,540 per share on the next day.

In general, exchange traded funds and mutual funds calculate the NAV on a daily basis, usually after the market closes. All preceding buying and selling orders are processed with the help of the net asset value which is applicable on the date of the trade.

Why is it Important to Know the Net Asset Value?

NAV is one of your only sure shot ways to gauge the performance of a Mutual Fund. By giving the investors a comparison point to measure different funds or find out how a fund is performing in line with the industry’s benchmark, NAV gives the investors an accurate insight into which mutual fund to buy and which ones to sell.

What are the Shortcomings of the NAV

While it is true that Net Asset Value is a helpful method to find out the performance of a Mutual Fund, but it is not ideal for the investors to rely on just NAV to base their mutual funds investment decisions. Because in case of mutual funds almost the complete capital gains and income are paid out to the shareholders, it might be a lot better idea to base the investment decision on the total annual return that a mutual fund or SIP is generating.

Net asset value vs. market price

The general rule of thumb is that the investors have to buy and sell their mutual funds on a price that is based on their net asset value. However, in case of the exchange trade funds, the NAV might vary from the fund’s market price – the rate at which mutual funds are bought and and sold. The reason that this might happen is because the exchange trade funds are usually dependent on the demand and supply, which ultimately drives the share price higher or lower that the NAV.

However, even in a case like that, market price per share of the fund is generally very close to its net asset value.


The evaluation of a mutual fund’s NAV can help determine whether or not you should make an investment in that specific mutual fund. But you should note that there are a number of other factors as well that should be considered such as – your purpose of investment, the charges that you will have to incur, and the mutual fund’s expected returns as well.

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