What Is Mutual Fund NAV?
Mutual fund net asset value (NAV) represents a fund's per share market value. It is the price at which investors buy (bid price) fund shares from a fund company and sell them (redemption price) to a fund company.
A fund's NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, less any liabilities, by the number of shares outstanding.
Key Takeaways
- Net asset value (NAV) represents a fund's per-share intrinsic value.
- It is similar in some ways to the book value of a company.
- NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, minus any liabilities, by the number of outstanding shares.
- The NAV calculation is important because it tells us how much one share of the fund should be worth.
- The actual market value of a fund may differ slightly from its NAV, which may represent a buying or selling opportunity.
Understanding Mutual Fund NAV
A NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio's securities. The formula for a mutual fund's NAV calculation is straightforward:
NAV = (Assets - Liabilities) / Total number of outstanding shares
For example, let's say a mutual fund has $45 million invested in securities and $5 million in cash for total assets of $50 million. The fund has liabilities of $10 million. As a result, the fund would have a total value of $40 million.
The total value figure is important to investors because it is from here that the price per unit of a fund can be calculated. By dividing the total value of a fund by the number of outstanding units, you are left with the price per unit—the form of measurement in which NAV is usually quoted. As such, the price of a mutual fund is updated around the same time as the NAVPS.
Building on our previous example, if the fund had 4 million shares outstanding, the price-per-share value would be $40 million divided by 4 million, which equals a NAV of $10 per share.
To compute a fund's daily NAV, the values of assets and liabilities are computed at the end of each trading day.
Mutual Fund NAV vs. Stock Prices
The NAV pricing system for the trading of shares of mutual funds differs significantly from that of common stocks or equities, which are issued by companies and listed on a stock exchange.
A company issues a finite number of equity shares through an initial public offering (IPO), and possibly subsequent additional offerings, which are then traded on exchanges such as the New York Stock Exchange (NYSE). The prices of stocks are set by market forces or the supply and demand for the shares. The value or pricing system for stocks is based solely on market demand.
On the other hand, a mutual fund's value is determined by how much is invested in the fund as well as the costs to run it, and its outstanding shares. However, the NAV doesn't provide a performance metric for the fund. Because mutual funds distribute virtually all their income and realized capital gains to fund shareholders, a mutual fund's NAV is relatively unimportant in gauging a fund's performance. Instead, a mutual fund is best judged by its total return, which includes how well the underlying securities have performed as well as any dividends paid.
Advisor Insight
Joe Allaria, CFP®
CarsonAllaria Wealth Management, Glen Carbon, IL.
The NAV is simply the price per share of the mutual fund. It will not change throughout the day like a stock price; it updates at the end of each trading day. So, a listed NAV price is actually the price as of yesterday's close. But an order you put in will be based on the updated NAV at the end of the current trading day. As a result, you may not know the exact NAV when you buy or sell shares.
For example, if you want to buy $10,000 worth of mutual fund ABCDX, and the NAV as of yesterday's close was $100, that would mean you purchase 100 shares. However, if the NAV increases drastically on the day you made your purchase, you may end up with fewer than 100 shares.
What Does NAV Mean in Finance?
NAV stands for net asset value. In finance, it is used to evaluate the value of a firm or an investment fund by subtracting its liabilities from assets.
Where Do You Find the Net Asset Value per Share of a Mutual Fund?
The net asset value per share (NAVPS) of a fund is often reported along with its price quote with a broker or online financial portal. This value will often be close to, but slightly different from, the fund's actual market price since NAVPS is calculated once per day, while the assets held by a fund may change in price throughout the day.
What Causes a Change in the Net Asset Value of a Mutual Fund?
When the holdings in a fund's portfolio change, the value of the assets of the fund will also change, leading to a change in NAV. Additionally, NAV can change if the fund's liabilities change.
Is a High NAV Good or Bad?
A high NAV indicates nothing on its own, except that the fund holds a large value of assets. What is important is to compare things on a relative basis, such as the NAV of one growth fund to another. It is also important to compare a fund's NAV to its market price. If the NAV is much higher than the current market price, it may signal a good buying opportunity.
Is NAV Same As Book Value (BV)?
Book value is used to evaluate the intrinsic value of a particular company, by subtracting the firm's liabilities from its assets found on its balance sheet. This is a similar calculation to a fund's NAV, but a fund's assets are themselves shares of companies (in many instances).
FAQs
Net asset value (NAV) represents a fund's per-share intrinsic value. It is similar in some ways to the book value of a company. NAV is calculated by dividing the total value of all the cash and securities in a fund's portfolio, minus any liabilities, by the number of outstanding shares.
What is the formula for NAV of a mutual fund? ›
NAV full form stands for Net Asset Value. It represents the market value per share for a particular mutual fund. It is calculated by deducting the liabilities from total asset value divided by the number of shares.
What is the formula for calculating mutual funds? ›
How to compute your SIP mutual funds returns? SIP mutual funds returns work on the below formula: P [ (1+i)^n-1 ] * (1+i)/i where P is what you invest at periodic intervals, n pertains to the number of investments/payments and i is the rate of interest (periodic).
What is NAV calculator? ›
NAV stands for Net Asset Value.
It is generally used as an indicator of the fund's overall performance. It is calculated by subtracting the mutual fund's liabilities and expenses from its total asset value and dividing the result by the number of outstanding units.
What is a good NAV value? ›
No specific value can be considered a good net asset value for mutual funds, depending on the investment objective, fund category, and investment strategy. Generally, a good NAV is consistent with the investment objectives and aligns with the investor's risk tolerance, investment horizon, and financial goals.
What is the NAV rule for mutual funds? ›
Applicable NAV for mutual funds transactions
The following rules determine the NAV, regardless of the investment amount: If the purchase transaction application is received by 3:00 PM on a business day, with funds available for utilisation by the same time, the NAV of that day applies.
How do I choose a NAV for a mutual fund? ›
NAV in Mutual Fund investments
Whether a fund's NAV grows from Rs 10 to Rs 14 or from Rs 100 to Rs 140, the return is 40%. The focus should be on the fund's Compound Annual Growth Rate (CAGR) over time.
What is the math behind mutual funds? ›
The price of a share is its net asset value (NAV), or the market value of each share as determined by the fund's assets and liabilities and the number of shares that exist. Here is the basic formula for calculating NAV: NAV = (market value of fund securities − fund liabilities) ÷ number of shares outstanding.
What is a mutual fund calculator? ›
A mutual fund calculator is an online tool that helps investors calculate their returns and the future value of an investment based on a certain investment strategy.
How do you calculate the basis of a mutual fund? ›
To calculate average basis:
- Add up the cost of all the shares you own in the mutual fund.
- Divide that result by the total number of shares you own. This gives you your average per share.
- Multiply the average per share by the number of shares sold.
Every mutual fund house publishes the Net Asset Value (NAV) of each scheme daily. The NAV is available on the respective fund house website as well as on the AMFI website. One can check the net asset value (NAV) of a fund through Scripbox. Anyone can compare mutual funds and find the fund they wish to know the NAV.
How to calculate NAV in Excel? ›
To calculate NAV in Excel, you can use a simple formula where you input the values for total assets, total liabilities, and total units outstanding. For example, if cell A1 contains total assets, B1 contains total liabilities, and C1 contains total units outstanding, the formula in Excel would be = (A1 - B1) / C1.
What is the NAV in simple terms? ›
Net asset value (NAV) is defined as the value of a fund's assets minus the value of its liabilities. The term “net asset value” is commonly used in relation to mutual funds and is used to determine the value of the assets held.
What is the formula for calculating NAV? ›
NAV=(Assets – Liabilities) / Total Shares
Net Asset Value is calculated as Net Asset of the Scheme / Outstanding Units. In this case, the net asset of the schemes may be estimated as the market value of the investments, receivables, other accrued income, and other assets.
Should I buy when the NAV is high or low? ›
Dispelling Common NAV Myths
However, it has no bearing on how the fund will perform in the future. Similarly, some investors feel that investing in a fund with a lower NAV is the best option. The widespread consensus is that since the NAV is smaller, it has more room for future development.
Which mutual fund has the highest NAV? ›
The top NAVs are from Nippon India Growth Fund (at Rs 3430.940 direct plan, Rs 3,166.006 regular), HDFC Flexi Cap Fund (Rs 1715.957 direct, Rs 1583.405 regular), Franklin India Flexi Cap Fund (Rs 1511.705 direct, Rs 1371.972 regular), Franklin India ELSS Tax Saver Fund (Rs 1370.712 direct, Rs 1242.276 regular), HDFC ...
Where can I find the NAV of a fund? ›
Net asset value (NAV) is the value of an investment fund that is determined by subtracting its liabilities from its assets. The fund's per-share NAV is then obtained by dividing NAV by the number of shares outstanding.
What is the formula for NAV in Excel? ›
NAV = (Total Assets - Total Liabilities) / Total number of outstanding shares
What is the difference between market price and NAV of a mutual fund? ›
Market price is the price at which ETF shares can be bought and sold during trading hours. The NAV is an equation that involves adding up the total of a fund's assets and then subtracting liabilities and dividing the result by the number of outstanding shares.
What is the NAV of an investment fund? ›
"Net asset value," or "NAV," of an investment company is the company's total assets minus its total liabilities. For example, if an investment company has securities and other assets worth $100 million and has liabilities of $10 million, the investment company's NAV will be $90 million.
