Net Asset Value (NAV) (2024)

FAQs

Net Asset Value (NAV)? ›

"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.

The notion that a Mutual Fund's performance is inversely related to its NAV is a misconception. NAV is simply the per unit value of the fund and it does not reflect its quality or potential. For example, a fund with an NAV of Rs 22 is not necessarily superior or inferior to one with an NAV of Rs 85.

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.

What is Considered as a Good NAV? There is no specific value that can be considered as a good Net Asset Value for mutual funds, as it depends on various factors such as the investment objective, fund category, and investment strategy.

The NAV is determined by adding up the combined value of all the ETF's individual holdings plus its cash and is usually expressed on a per-share basis. The price of an ETF share generally stays very close to NAV but if the share price is below the NAV, then the ETF is said to be trading at a discount.

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.

You should not buy a mutual fund with a lower NAV. You should factor in many details like past performance, AUM size, alpha, beta, etc, while investing in a mutual fund. But NAV shouldn't be looked at.

The performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value (NAV). In simple words, NAV is the market value of the securities held by the scheme. Mutual Funds invest the money collected from investors in securities markets.

The NAV does not have any impact on your returns. For example, a high or low NAV does not make your returns higher or lower. If you study the growth or degrowth in NAV for any fund, it tells you the fund's growth pattern and helps you make better decisions.

What is a good net asset value per share? Generally, a good NAV per share is relatively high concerning the company's share price. This indicates that the company's assets are valuable, and the market undervalues its shares. This can be a good opportunity for investors to buy shares in the company at a discount.

Do mutual funds sell at NAV? ›

The shares of mutual funds are very liquid, easily traded, and can be bought or sold on any day the market is open. An order will be executed at the next available net asset value (NAV), which is determined after the market close each trading day.

Example of NAV Calculation

Assume that a mutual fund has $100 million worth of total investments in different securities, which is calculated based on the day's closing prices for each asset. It also has $7 million of cash and cash equivalents on hand, as well as $4 million in total receivables.

A higher NAV indicates a profit, whereas a lower NAV indicates a loss for the fund on that given day.

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.

The net asset value of mutual fund scheme is an indication of the market value per unit and is calculated after deducting the liabilities from total asset value divided. To get NAV per unit, this figure is divided by the number of units outstanding.

Normally, if P/NAV is lower than 1, it is a good sign.

Role of NAV in the Performance of a Fund

As mentioned above, the NAV of mutual funds can be used to track the past performance of any mutual fund scheme. The NAV does not have any impact on your returns. For example, a high or low NAV does not make your returns higher or lower.

If the fund is in high demand and low supply, the market price will typically exceed the NAV. If there is low demand and much supply, the market price will usually be lower than the NAV.

If investment trust shares are trading at a discount to NAV it can give the impression that the shares are cheap because the fund isn't worth investing in. Although this isn't always the case, boards don't want investors to be put off by a discount that is too wide.