Mutual Fund NAV – Net Asset Value with example

Mutual Fund NAV stands for Net Asset Value. Navigating the waters of mutual fund investments often introduces investors to a barrage of financial jargon, with “NAV” being a frequent term encountered along the journey. For those new to the world of investing or seeking clarity on this crucial metric, understanding what NAV (Net Asset Value) signifies and how it impacts investment decisions is essential.

In this blog, we embark on a journey to demystify the concept of NAV, exploring its significance, calculation method, and its role as a guiding beacon in the realm of mutual fund investments. Whether you’re a novice investor or a seasoned financial enthusiast, join us as we delve into the depths of NAV to uncover its secrets and unveil its significance in shaping investment strategies.

What is Mutual Fund NAV

NAV, or Net Asset Value, represents the performance of a mutual fund scheme and is measured per unit.

It’s calculated by dividing the market value of a scheme’s securities by the total number of units issued.

Example of calculating NAV

Let’s assume a mutual fund holds the following securities:

• Stock A: 1,000 shares at ₹100 each
• Stock B: 500 shares at ₹200 each
• Cash: ₹50,000

Total value of securities = (1,000 * ₹100) + (500 * ₹200) = ₹100,000 + ₹100,000 = ₹200,000

Total liabilities = ₹0 (for the sake of simplicity in this example)

Total assets (securities + cash) = ₹200,000 + ₹50,000 = ₹250,000

Now, let’s assume there are 1,000 units of the mutual fund outstanding.

NAV = Total assets / Total units outstanding = ₹250,000 / 1,000 = ₹250 per unit

So, the NAV of the mutual fund is ₹250 per unit.

Factors affecting NAV

1. Market movements: Fluctuations in the prices of the securities held by the fund will directly impact the NAV. If the value of the securities increases, the NAV will increase and vice versa.
2. Capital gains/losses: When the fund sells securities for a profit (capital gains) or a loss (capital losses), it affects the NAV.
3. Expenses: Any fees or expenses incurred by the mutual fund (such as management fees) reduce the NAV.
4. Income distribution: If the fund distributes dividends or interest income to unit holders, it reduces the NAV.
5. Redemptions and purchases: When investors buy or sell units of the mutual fund, it affects the total number of outstanding units, thus impacting the NAV.

These factors combined contribute to the fluctuation in the NAV of a mutual fund. Investors monitor NAV to assess the performance of the fund and to determine the price at which they can buy or sell units.

NAVs are posted daily on mutual fund websites and AMFI’s website.

Unlike stocks, mutual fund NAVs are declared after markets close, as per SEBI regulations. Units are allocated at the prospective NAV, reflecting the closing market value.

Applications submitted after the cut-off time receive the next business day’s NAV, applying also to redemptions.

How is applicable Mutual Fund NAV decided

	Liquid Funds/Overnight Funds	All Other Funds
Subscription	Where the application is received up to 1.30 p.m. on a day and the funds are available for utilization before 1.30 p.m. without availing any credit facility, the closing NAV of the day immediately preceding the day of receipt of application.Where the application is received after 1.30 p.m. on a day and funds are available for utilization on the same day without availing any credit facility, the closing NAV of the day immediately preceding the next business day; andIrrespective of the time of receipt of application (before or after 1.30 p.m. on a day), where the funds are not available for utilization before 1.30 p.m. without availing any credit facility, the closing NAV of the day immediately preceding the day on which the funds are available for utilization.	Where the application is received up to 3:00 p.m. and funds are available for utilization before 3:00 p.m., the closing NAV of the day on which the application is received.Where the application is received after 3:00 p.m. and the funds are available for utilization, closing NAV of the next business day.Irrespective of the time of receipt of application (before or after 3:00 p.m.), where the funds are not available for utilization, the closing NAV of the day on which the funds are available for utilization before cut-off time of 3.00 p.m.
Redemption	Where the application is received up to 3.00 pm – the closing NAV of day immediately preceding the next business day; andWhere the application is received after 3.00 pm – the closing NAV of the next business day.	Where the application is received up to 3.00 pm – closing NAV of the day on which the application is received; andWhere the application is received after 3.00 pm – closing NAV of the next business day.

What is Sale and Purchase Price

Purchase Price refers to the amount an investor pays per unit when buying units or switching from other schemes within a mutual fund. SEBI, in 2009, abolished Entry Load for all mutual fund schemes. So if you invest before cut off time, you will get Mutual Fund NAV as your purchase price.

Consequently, during the New Fund Offer (NFO), the Purchase Price per unit equals the Face Value per unit specified in the Scheme Information Document (SID) and Key Information Memorandum (KIM). In the ‘Ongoing Offer’ period, units can be purchased at Mutual Fund NAV.

Redemption Price represents the price per unit at which a investor redeems Mutual Fund or switch-outs to other schemes/plans. This price includes any applicable Exit Load. The Redemption Price is calculated as follows: Redemption Price = Applicable NAV * (1 – Exit Load, if any). For instance, if the Applicable NAV is ₹10 and the Exit Load is 2%, then the Redemption Price would be ₹10 * (1 – 0.02) = ₹9.80.

Exit Load

It’s important to recognise that an AMC/Trustee reserves the authority to alter existing Exit Load structures or introduce new Exit Loads, provided they adhere to the maximum limit stipulated under the Regulations.

Any changes to the Load structure will only apply to future transactions and will not impact existing mutual fund units in any way.

In accordance with SEBI (Mutual Funds) Regulations, 1996, for Open-Ended Schemes, the Repurchase Price (also known as Redemption price) cannot be less than 95% of the NAV.