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Eight Important Points to Know about Mutual Fund NAVs

Mutual Fund NAVs

Mutual fund NAV is like the daily share price of a stock or the rate at which you buy or sell a mutual fund. This similarity is only for understanding, theoretically, a mutual fund NAV is not affected by the demand or number of people who buy the mutual fund in a day, unlike shares where the ask quantity or demand for a share determines the share prices. Many think that buying a mutual fund scheme with a lower NAV is better since you are buying cheaper but this is not true. In practical terms, the mutual fund NAV is irrelevant, buying a fund with a higher NAV does not make it bad. We will decode more about mutual fund NAVs and try to break some myths.

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These are the 8 important points to know:

  1. Mutual fund NAVs are declared daily.
  2. One can view mutual fund NAVs for any mutual fund scheme every evening post 8 p.m. on the AMFI website(www.amfiindia.com). Historic or previous day/month/years NAV can also be viewed here.
  3. While investing or comparing funds, one should not consider the NAV-higher or lower, other parameters such as past track record, risk & other metrics such as beta, alpha, expense ratio, standard deviation, sharpe ratio, etc, should be read and understood. For more on this, one can read our previous post-https://www.wishfin.com/mutual-fund/how-should-mutual-fund-comparison-be-done/
  4. When you invest or sell your mutual fund units on a certain day before the cut-off timings, you get that day’s NAV. For e.g.-If you invested some money in an equity fund on 29th May-Friday before the cut-off of 3.00 p.m. then the buying price or NAV will be the one declared on Friday evening.
  5. Every mutual fund scheme has two plans-regular and direct, within both plans, there are growth and dividend options. Therefore, every day, there are four NAVs declared for a mutual fund scheme. For example, the name of the fund is Fund A, there will be the different NAVs-Fund A Regular Plan-Growth option, Fund A Regular Plan-Dividend option, Fund A Direct Plan-Growth Option, Fund A Direct Plan-Dividend Option.
  6. The NAV of an equity fund goes up and down basis the change in prices of the underlying portfolio i.e. changes in stock prices of the shares bought by that equity fund. Whereas, the NAV of a debt fund goes up and down basis the movement in prices of bonds held by the portfolio.
  7. Returns of mutual funds are calculated based on the movement of the NAV. Suppose there are two funds-A & B with NAV’s of 10 and 20 respectively today. One year later, the NAV of fund A moves from 10 to 12 and that of fund B moves from 20 to 22. In that case, returns of fund A will be 20% (12-10)/10*100 and that of fund B will be 10%( 22-20)/20*100.
  8. Weekends being non-business days for mutual funds see no declaration of NAVs
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Mutual fund NAV need not be viewed every day, it is the price or rate of your mutual fund scheme. Also, it is important to not make investment or selling decisions based on NAVs.

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