FAQs on mutual fund's NAV calculation

Posted by swarali chavan on April 21st, 2019

When you opt for the mutual fund as an investment option, investors often give importance to the returns and its past performance. Seldom are people aware of its worth, i.e. the Net Asset Value (NAV).

What is NAV?

One of the mutual fund basics is NAV that every investor should be aware before beginning the investment process. The overall cost of the mutual fund scheme depends on the price per unit of the fund which is called NAV. Usually, the unit cost of the mutual fund begins at INR 10, and it rises as the fund's assets start to grow. So, a popular scheme will have higher NAV than the lesser popular one.

How important is the NAV when selecting the mutual fund scheme?

Many investors believe that a NAV of INR 15 is economical in comparison to NAV of INR 20. However, it is not an accurate observation. Also, it is essential to understand that the share price and NAV are not the same. That brings us to the next question.

What is NAV and market price?

NAV rates change every day. On the other hand, the cost of the shares is the same as mentioned in the stock exchange. These changes depending on the market factors.

How does NAV calculation work?

NAV calculation is dependent on two aspects:

  • General NAV calculation: Say the mutual fund NAV is INR 500, that is how much you have to pay for one unit of the fund. So, if you decide to invest INR 5,000 in a mutual fund scheme worth NAV of INR 500, you will receive 10 units. These rates are subject to change depending on the market conditions.
  • Daily NAV: Some companies check the worth of their mutual fund portfolio when the stock market closes at 3:30 PM every day. The next day the market opens with the previous day’s NAV. How does the NAV calculation happen on a new day? They deduct the payable and expense accordingly for the new NAV for the day. To know the NAV rate you will receive for the day, you have to divide the total asset value by a number of units issued.

How does the cut-off time affect NAV?

Mutual fund houses release the NAV every day. This is why they are time-bound. The cut-off limit is generally 2 PM. So, if you invest before 2 PM, you receive the same day’s NAV. If the investment exceeds the cut-off time, you receive the next day’s NAV.

Ensure that you are aware of these mutual fund basics before selecting this investment option.

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swarali chavan

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swarali chavan
Joined: April 21st, 2019
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