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.
What is the formula for NAV of a mutual fund? ›
NAV=(Assets – Liabilities) / Total Shares
Net Asset Value is calculated as Net Asset of the Scheme / Outstanding Units. In this case, the net asset of the schemes may be estimated as the market value of the investments, receivables, other accrued income, and other assets.
How is mutual fund NAV calculated with example? ›
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 NAV and its formula? ›
NAV = (Assets - Liabilities) / Total number of outstanding shares. NAV is often close to or equal to the book value per share of a business. Companies considered to have high growth prospects are traditionally valued more than NAV might suggest.
What is NAV in simple words? ›
The performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value (NAV). In simple words, NAV is the market value of the securities held by the scheme.
Is higher NAV better? ›
It is, therefore, irrelevant how high or low the NAV of a fund is. The amount of your investment remaining unchanged, between two funds with identical portfolios, a low NAV would mean a higher number of units held and consequently a high NAV would mean a lower number of units held.
How to calculate NAV returns? ›
The NAV return is calculated based on the daily NAV of the fund reported after the stock market's close each trading day. The NAV is a basic calculation performed by the fund's accountants. It represents the total assets minus total liabilities divided by outstanding shares.
What affects the NAV of a mutual fund? ›
A mutual fund's NAV is calculated by dividing the value of the fund's assets by the number of the fund's outstanding shares. When a fund distributes dividend payments to its shareholders, the NAV declines. Shareholders must keep this in mind when attempting to determine how well their investments are performing.
Which NAV is calculated at the end of the day? ›
The NAV of a mutual fund is always calculated at the end of the market day. This is because the market value of securities changes on a daily basis. Hence, the NAV of a mutual fund also changes daily.
What is the difference between market price and NAV? ›
What Is the Main Difference Between Market Price and NAV? The ETF market price is the price the ETF can be bought or sold on exchanges during trading hours. The NAV is the closing price and value of each ETF holding based on the share's portion of the fund's assets at the end of the trading day.
The net asset value (NAV) of a business or equity is calculated by subtracting the total value of its assets from the total value of its liabilities and dividing the result by the number of outstanding shares.
Is NAV equal to equity? ›
NAV (Net Asset Value) refers to the total equity of a business. While NAV can be applied to any entity, it is mostly used to reference investment funds, such as mutual funds and ETFs.
What is 15x15x15 rule in mutual fund? ›
More About the 15x15x15 Rule for Mutual Fund Investments
It says that if you invest Rs. 15,000 per month via SIP in an equity mutual fund that is capable of generating an average return of 15%, you are most likely to become a crorepati in 15 years (as stated in the example above).
What if I invest $10,000 in mutual funds for 5 years? ›
If a SIP of Rs 10,000 had been started in it 5 years ago, today this amount would have been Rs 12.72 lakh. The fund has given an annual return of 30.62 percent in these five years.
What is the difference between NAV and return in mutual fund? ›
NAV returns are based on the closing price of the Closed End Funds underlying securities, while market returns are based on the closing price on the exchange of the Closed End Fund itself.
Is a high NAV good or bad? ›
A fund with a high NAV is considered expensive and wrongly perceived to provide a low return on your investments. Instead, you tend to pick mutual funds with a low NAV. That's because you believe that more MF units would translate into higher earnings. But, there's more than what meets the eye.
What are the two types of NAV? ›
There are two types to calculate the NAV: Daily net asset valuation. Basic calculation of the net value of assets.
At what time NAV is calculated? ›
The cut off time for purchase transactions for all mutual fund schemes other than liquid fund schemes is 3:00 p.m. This means that if you have invested till 3:00 p.m. on a particular day, you will get that day's NAV.
What is a good price to NAV? ›
The price to net asset value is then derived by dividing the share price with the company's net asset value per share. Traditionally, a price to book ratio below 1 is a good multiple since it potentially indicates that the shares are undervalued.
Which mutual fund has highest NAV? ›
HDFC TaxSaver Fund has the highest NAV and has offered the highest return since inception.
Best Performing Equity Mutual Funds
| Fund Name | 3-year Return (%)* | 5-year Return (%)* |
|---|
| Aditya Birla Sun Life Digital India Fund Direct-Growth | 35.36% | 21.79% |
| Nippon India Small Cap Fund Direct- Growth | 47.76% | 21.70% |
| Quant Flexi Cap Fund Direct-Growth | 39.63% | 21.60% |
| ICICI Prudential Technology Direct Plan-Growth | 37.77% | 21.33% |
6 more rowsMutual Fund Net Asset Value Calculation Example (NAV)
For example, if a mutual fund's total holdings are valued at $100 million with liabilities of $20 million, the fund's NAV is equal to $80 million.
How does the NAV change mutual funds? ›
The change in the NAV value occurs because the prices of the underlying securities in the portfolio changes every day. Each mutual fund is a basket of securities and /or debt instruments held in the portfolio. The market value of the securities and debt instrument changes as they are traded on stock exchanges.
What is the total return of a mutual fund? ›
Total return includes interest, capital gains, dividends, and distributions realized over a given period of time. In other words, the total return on an investment or a portfolio includes both income and appreciation.
What is the best time of day to buy mutual funds? ›
The opening 9:30 a.m. to 10:30 a.m. Eastern Time (ET) period is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time.
What makes NAV go up? ›
The NAV (on a per-share basis) represents the price at which investors can buy or sell units of the fund. When the value of the securities in the fund increases, the NAV increases. When the value of the securities in the fund decreases, the NAV decreases.
What causes NAV to increase? ›
The fundamentals of supply and demand will adjust the trading price of a mutual fund compared to its NAV. If the fund is in high demand and low supply, the market price will typically exceed the NAV. If there is low demand and much supply, the market price will usually be lower than the NAV.
Which NAV will I get if I buy mutual fund today? ›
Which NAV Value Is Considered When Making a Mutual Fund Purchase in the Evening? The same day's NAV is considered if the mutual fund is bought before 3 pm. If you place the orders for units of any mutual fund before 3 pm on a working day, you will get units at the NAV value of the end of that very day.
How often is NAV calculated? ›
Mutual funds and Unit Investment Trusts (UITs) generally must calculate their NAV at least once every business day, typically after the major U.S. exchanges close. A closed-end fund, whose shares generally are not "redeemable"—that is, not required to be repurchased by the fund—is not subject to this requirement.
Can I buy mutual fund today and sell tomorrow? ›
The shares of mutual funds are very liquid, easily traded, and can be bought or sold on any day the market is open. An order will be executed at the next available net asset value (NAV), which is determined after the market close each trading day.
Mutual funds calculate their NAV per share daily and that is the price you'll pay to buy or sell shares in the fund. Mutual funds aren't traded throughout the day like stocks, but instead are priced at the end of the trading day.
Is NAV fair value? ›
NAV is essentially the value at which investors can buy shares of the Fund. For the Yieldstreet Prism Fund, shares won't be traded on an open market, therefore the NAV will be calculated as the fair value for the Yieldstreet Prism Fund, allowing investors to purchase shares from the Fund at the determined NAV price.
Is NAV the same as unit price? ›
NAV represents the per unit price of a mutual fund scheme on a specific date or time, whereas AUM refers to the total value of assets managed by the scheme.
Does NAV include expense ratio? ›
The TER is calculated as a percentage of the Scheme's average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses.
What does negative NAV mean? ›
A negative NAV implies the falling performance of a fund. However, a change in NAV would not bring any change in the value of your investment.
Is the NAV of a mutual fund calculated daily? ›
The NAV of a mutual fund is always calculated at the end of the market day. This is because the market value of securities changes on a daily basis. Hence, the NAV of a mutual fund also changes daily.
What is the difference between market value and NAV? ›
What Is the Main Difference Between Market Price and NAV? The ETF market price is the price the ETF can be bought or sold on exchanges during trading hours. The NAV is the closing price and value of each ETF holding based on the share's portion of the fund's assets at the end of the trading day.
What is NAV for fund of funds? ›
NAV is the acronym for Net Asset Value, and it represents the net value of an entity. In the case of mutual funds, NAV means the market value per unit of the fund. NAV of a mutual fund scheme is derived basis the difference between total assets and total liabilities divided by the total number of outstanding units.
At what time is NAV calculated? ›
How is the Applicable NAV determined? Where the purchase transaction is received upto cut-off time of 3.00 p.m. on a business day at the official point(s) of acceptance and funds for the entire amount of subscription/purchase are available for utilization upto 3.00 p.m. on the same Business Day.
What time is NAV calculated? ›
Mutual fund prices, also known as net asset value (NAV), are updated once a day after the U.S. stock market close, usually between 4 p.m. and 6 p.m. EST.
To calculate NAV, the overall expense ratio is subtracted from the asset value. To standardize the value of assets to every unit, this value is then divided by the total number of outstanding units to yield the net asset value.
Should I buy when NAV is high or low? ›
If you are investing in mutual funds, you generally tend to aim high and shoot low. This is the reason mutual funds with a high net asset value (NAV), have gained a bad reputation on the street. A fund with a high NAV is considered expensive and wrongly perceived to provide a low return on your investments.
What is the difference between NAV and price of mutual fund? ›
Difference Between NAV & Market Price
The NAV of mutual funds is nothing but the book value of the mutual fund scheme. It is purely a function of the value of its assets, liabilities/expenses, and the number of units. In comparison, the market price is that of the assets/securities that the mutual fund holds.
How does NAV fund work? ›
"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.
