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NAV stands for net asset value, it is an important term related to mutual funds, NAV is the value per unit of any mutual fund decided by the asset management company (AMC) at the time of issuing the mutual fund and its value continuously fluctuates daily, here you will get all the knowledge related to the NAV in mutual funds and know about other important terms in mutual funds, read till the end
Also, check the FAQs section at the end to clear your other doubts.
A brief explanation of NAV (Net Asset Value)
NAV (Net Asset Value) is a single unit price of any mutual fund at which an investor can buy or sell mutual funds, it is decided by the Asset management company / Mutual fund management company at the time of the New fund offering (NFO) and it fluctuates daily after being launched because Mutual Fund company invests the investor’s pooled fund into the Equity / Debt / or both combined (hybrid) and Prices of these instruments fluctuates daily because of demand & supply, news, economic conditions, company’s performance, etc.
You can check any Mutual fund’s NAV online by directly visiting the desired Asset Management Company’s website or logging into the securities broker site (like Grow, Upstox, Zerodha, AngelOne, etc) First login to the broker’s site, then click on the mutual fund section, choose any mutual fund from below and you will see the NAV written below.
(Refer to the image below, it’s the image of the Groww mutual fund interface)
Example: If you are willing to invest 1000 rupees into any mutual fund and the current NAV of that mutual fund is 50 rupees, then 1000/50= 20 units (you will be allotted 20 units of that Mutual Fund).
You can invest in mutual funds either in the way of SIP (systematic investment plan) or lump sum investment plan, in SIP you will get additional mutual fund units on each installment proportionate to the amount, based on the current NAV price which will be added to your previous balance units,
And in the Lump-sum plan, you will be allotted mutual fund units one time based on your invested amount and current NAV price.
How is NAV calculated?
The formula for calculating NAV in mutual funds is:
NAV= Total net assets (Assets – Expenses) / Total units outstanding
Here,
Assets= total funds invested and cash balance
Expenses= audit fee, custody fee, expense ratio, and other liabilities
Total units outstanding= at the time of New Fund Offering (NFO), mutual fund companies (AMCs) decide and fix the per unit price (NAV) and allot proportionate units to the investors based on their investments, further fresh units are allotted on every new investment.
Let’s understand it with the help of an example
| Assets (current value of funds invested + cash balance) | 1000 crore |
| Expenses and other liabilities | 10 crore |
| Total units outstanding | 99 crore |
NAV= 1000 crore – 10 crore / 99 crore
= 990 crore / 99 crore
NAV= 10 rupees
Other important terms in mutual funds:
Asset Management Company (AMC) | AMC are SEBI-registered entities whose main aim is to invest investor’s money by pooling it to generate returns for investors against fees as a consideration. (mutual fund companies are asset management companies) |
Asset under management (AUM) | It is the total market value of assets that the AMC is managing on behalf of investors. |
Expense ratio | The expense ratio is the fees charged by the asset management company (AMC) for managing investors’ funds. (0.5% – 0.7% is considered good) |
New Fund Offering (NFO) | It refers to the fresh offering of a new mutual fund to the investors by the AMC, it is similar to an IPO in the case of stocks. |
Scheme Information Document (SID) | It is a document that is issued at the time of the New Fund Offering (NFO). It contains almost all the information about a mutual fund like minimum subscription, exit load, fund managers, expense ratio, NAV, etc. |
Exit Load | Exit load is a penalty that is charged to an investor if he redeems his mutual fund units before the lock-in period fixed by an Asset Management Company (AMC). |
Equity Mutual Funds | These are the types of mutual funds where the investor’s maximum funds are invested into the equity (shares) by the AMCs. |
Debt Mutual funds | These are the types of mutual funds where the maximum amount of investor’s funds are invested into the debt instruments like debentures, bonds, govt. Bonds, etc by the AMCs. |
Hybrid Mutual Funds | These are the types of mutual funds where AMCs invest investors’ funds into both equity and debt instruments. |
Fund Managers | Fund Managers are financially literate, experienced, and well-qualified persons employed by the AMCs to allocate and manage investors’ funds. |
FAQs section
Q1: Why does the NAV (Net Asset Value) price change daily?
A1: Mutual Fund Companies (AMCs) invest investor’s funds into equity or debt instruments whose market value fluctuates because of the demand and supply, market news, economic conditions, results, and other factors, which directly impact the current total net assets value which a mutual fund company is holding on behalf of investors and results in a change in the price of NAV daily.
Q2: When can I redeem/withdraw my mutual fund investment?
A2: You can redeem your mutual fund investment anytime it’s up to you, it will just take 2-3 days to reflect the amount into your respective bank account.
Q3 How can I invest in any mutual fund?
A3: You can invest in mutual funds either by an online method or offline method, the most convenient is an online method where you have to choose the SEBI registered brokerage firm (Groww, Upstox, Zerodha, etc) through which you want to invest and then complete your KYC process and start investing, but analyze properly before investing.
In the offline method, you have to physically visit the Asset Management Company’s office near you, complete your KYC, fill in the required documents and start investing.
Q4: Can I buy fractional units of any mutual fund?
A4: Yes, you can buy a fraction of the units of any mutual fund.
Q5: What is the minimum amount I can invest in a mutual fund?
A5: You can start investing in mutual funds with as low as 100 rupees, but it’s not in every mutual fund, the minimum investment can be either 100/150/500/1000.
Conclusion
In this article , we have described briefly about the NAV in Mutual Funds with examples and other related terms in mutual funds. I hope you understand, thank you for reading and stay tuned for our upcoming articles.