What is NAV in Mutual Fund?| How to calculate NAV?

Q: What is NAV?

Ans: You have all heard about NAV when someone discusses the mutual fund. So what is NAV? NAV stands for Net Asset Value. In mutual funds, we buy units like we buy stocks in the stock market. Every fund has its own price per unit depending on its performance. This price per unit is called as NAV. 

How to calculate NAV?

It is calculated using this formula:
   NAV = Total assets of the portfolio in which you have invested - Its liability
                           Total number of units allotted to the investors

So let's discuss one by one what do the above three terms mean:

• Total assets of the portfolio in which you have invested - If you have chosen a portfolio, for example, a fund like Reliance Small Cap Fund Direct Growth, all the amount invested will go into the market when the market opens and will be returned back to the company after the market is closed on that day. Depending on the performance of the fund in which you have invested the value of funds assets will go up(profit) or down(loss).

• Its liability - Liability is the amount which includes the expense borne by the fund company to operate the company. It includes many other additional costs which have to be paid to the government and other regulators.

• The total number of units allotted to the investors - These are the number of units distributed by the fund company among the investors like you. These units are calculated when you invest in that fund. Depending on the performance of the fund in which you have invested the starting day, NAV will be given to you according to your invested amount. Let me make it simple for you, for example, if you had invested Rs.10,000 in the morning on a particular day, in the evening the nav of the fund will come out. Let's consider the nav of the fund is Rs.50, so you will be getting a total 200 units in that fund. So tomorrow the fund will add your 200 units to the portfolio. (This is just an example, usually fund companies take 1-2 days to process your investment) 

Let's calculate NAV with the formula for an example, consider: 

•    Total assets of the portfolio in which you have invested - Its liability= Rs.1000 crore
•    Total number of units allotted to the investors=100 crore units

The NAV turns out to be 10 INR, so if u have invested 10000 rupees you will have 1000 units of that particular fund. This keeps on changing every day depending on the performance of the portfolio in which you have invested. 

          If you are investing for a longer period of time, your investment will not be hugely affected by market and you can expect a very good return but on the contrary, if your investment is for a shorter period in equity funds it can have an impact on your investment. If you want to know more about fewer risk investments read arbitrage funds, debt funds. 

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