Last Updated on Jan 13, 2023 by Aradhana Gotur
As an investor, the first thing you look at when buying a stock is its price. First, you evaluate whether it is affordable based on the absolute stock price. Then you determine whether a stock is under or overvalued and do a basic stock analysis. Only then you buy the stock. But what about mutual fund NAV?
Should you put as much emphasis on mutual fund NAV when buying units of a scheme? Is a mutual fund with a lower NAV better than a higher value? Should you track the NAV? In this article, we answer these and other important questions about mutual fund NAV.
Table of Contents
NAV meaning in a mutual fund
When you invest in a mutual fund, you get its units. The price you pay to buy these units is measured in terms of NAV, which stands for net asset value. In simple terms, NAV is the price you pay to buy one unit of a mutual fund. NAV represents all the assets that a mutual fund has bought or invested in.
Formula for calculating mutual fund NAV
(Value of securities held by the mutual fund + value of all receivables – value of all payables) / Number of units
For example, suppose MF XYZ holds securities worth Rs. 10,000, has receivables of Rs. 1,000, and payables of Rs. 1,000. The outstanding units are 100. Then the NAV of MF XYZ is (10,000 + 1,000 – 1,000)/100 = 1050/ 100 = Rs. 100.
When is NAV updated?
NAV is updated by mutual funds by 9 pm every working day.
Does NAV remain constant?
No. Since mutual funds invest your money in various investments like stocks, bonds, etc., the NAV can change with time.
Is a lower NAV better than a higher one?
Not necessary. NAV is not the indicator of the performance of a mutual fund. Generally, new mutual funds have a lower NAV than old ones. However, NAV should not be the only factor to consider when investing in a mutual fund, as it can be misleading. When investing in a mutual fund, you should consider other details, such as AUM, past performance, alpha, beta, expense ratio, tracking error, etc.
Is NAV similar to the stock price?
Not exactly:
- NAV is similar to the stock price in the sense that it is the price at which you acquire/invest in the asset.
- While the NAV reflects the book value of a mutual fund, the stock price is the reflection of the book value (including the assets and profits) of the company.
- NAV is calculated after market hours of a working day, whereas a stock price can change throughout the trading hours.
- Besides the book value of the company, the stock price is also affected by other factors such as demand, investor perception of the company, macroeconomic conditions, and so on. NAV is not extremely sensitive to these factors as it is calculated based on the securities held by the mutual fund. This is why NAV cannot be over or undervalued. This is also why the NAV should not be a deciding factor of investment in a mutual fund.
How to check the NAV of a mutual fund?
You can find the NAV of a scheme on the respective Mutual Fund Page on Tickertape. Here’s how to find the NAV of HDFC Liquid Fund on Tickertape.
- Launch Tickertape on mobile or web
- Type HDFC Liquid Fund in the search box
- Click on the fund name and hover on the price chart to see the NAV
Difference between NAV and AUM
While the NAV is the price per unit of a mutual fund, AUM (Asset Under Management) is the sum total of assets and cash held by the mutual fund.
Which day’s NAV is applied when purchasing a mutual fund in the evening?
If you buy a mutual fund before 3 pm on a working day, the NAV at the end of the same day is considered. But if you place orders for mutual fund units after 3 pm, then the NAV at the end of the next day is considered. For orders placed on holidays, the NAV of the next working day is considered.
The same rules apply to the sale of mutual fund units.
Do Nifty and Sensex affect the NAV of a mutual fund?
Benchmark index may or may not affect NAV depending on the type of the mutual fund. NAV of funds that invest in Nifty and Sensex constituent stocks are affected by changes in the mutual funds. Generally, the NAV of large-cap mutual funds investing in the top companies of India is significantly affected by changes in Nifty and Sensex. NAV of other types of mutual funds may or may not be affected depending on the quantum of investment in large-cap stocks.
Is the NAV in SIP the same as that of a lump sum investment?
Yes, the NAV of a mutual fund is the same regardless of the mode of investment.
Frequently asked questions (FAQs)
What is the NAV full form in mutual funds?
Does NAV fluctuate like the stock price?
Should NAV history really matter?
Where can I find the live mutual fund NAV?
Where to find the latest NAV of mutual funds?
What is a good NAV for a mutual fund?
What is the NAV meaning in SIP?
Should you track mutual fund NAV?
