What is NAV ? How it affects your fund value?
A Thread π§΅π
A Thread π§΅π
1/ Mutual funds are the best way to create wealth in the long term. There are numerous mutual fund schemes available in the market, and often we can across the abbreviated term NAV (Net Asset Value) while looking for mutual funds.
2/ NAV represents the value of the fund per unit i.e. how much one share of the fund is worth. It is calculated as:
Net Asset Value = Fund Assets β Fund liabilities / Total number of units outstanding
Net Asset Value = Fund Assets β Fund liabilities / Total number of units outstanding
3/ Here, Fund Asset = market value of funds investment (stocks, bonds, cash) + other income (dividend, interest accrued)
Fund Liabilities = money owed to creditors + expense (management fees+ marketing fees+ agent fees+ custodian and audit fees)
Fund Liabilities = money owed to creditors + expense (management fees+ marketing fees+ agent fees+ custodian and audit fees)
4/ Let us understand NAV. Suppose ICICI Prudential launched NFO (New fund offer) at initial offer price usually fixed at βΉ10 per unit (NAV). After new fund offer expires, collected revenue is invested in various securities and companies publicly listed on stock exchange.
5/ After listing (like IPO) mutual funds are traded in the market based on corresponding NAV of the fund. For instance, ICICI Prudential thematic scheme commenced operating in the market with a market value of fund scheme is βΉ100 crore (AUM) and it has issued βΉ5 crore units.
6/ Hence, NAV now stood at βΉ20 per unit (100/5) after listing. This is the price an investor has to pay to acquire one unit of mutual fund in the market. NAV is calculated on daily basis since the market value of securities changes every day, NAV of the fund varies daily.
7/ Alternatively, the units are also assigned based on the amount you want to invest and NAV of the mutual fund. Suppose the investor decides to invest βΉ10 lakh in HDFC Equity Growth Fund scheme whose NAV value at time of purchase is βΉ641.73, then investor will get 1,559 units.
8/ There is a misconception about NAV, higher the NAV, the better it is for investment or NAV at a low value is cheap to buy. This is often due to investors comparing NAV with stock market price. Unlike stock price, mutual funds are not traded on the stock exchange, and
9/ There is no such thing like per unit market price. NAV of a fund just reflects the per-unit cost of a particular fund. One cannot judge how expensive or cheap the fund is with the NAV of the fund nor every day NAV signals about the future growth prospects of the fund.
10/ Investor needs to evaluate a fund based on historical portfolio returns, fund size (AUM), ratios, fund managerβs history, beta, portfolio category (mid cap, small cap, blue chip). This might help investors to assess overall fund performance.
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BY :- @Dharmangi_S
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BY :- @Dharmangi_S
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