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What is Net Asset Value(NAV) and how is it calculated?

Last Updated : Sept. 4, 2017, 12:36 p.m.

Net Asset Value or NAV is the summation of the market value of all the shares held in the portfolio consisting of cash less the liabilities, divided by the total number of units outstanding. Thus, NAV of a mutual fund indicates a fund’s market price per share.

The value of all mutual fund units is calculated on a daily basis. The final value of NAV for that particular day is recorded at the end of every market day after taking into consideration the closing market prices of the securities that the mutual fund or scheme holds. The cut-off time for all your purchase transactions of all mutual fund schemes except liquid funds is 3: 00 pm. It means that if your investment is made upto 3:00 pm on any particular day, the purchase value of your fund would be based upon that day’s NAV only.

How to Calculate Net Asset Value ?

Do you know there are two ways of dividing mutual fund assets? Well, not sure. The answer is simple, they are securities and cash. As securities consist of both stocks and bonds, however, the total composition of the asset value of a fund will include stocks, cash, and bonds at market value.

Moreover, dividends, interest accrued and liquid assets also form a part of the total asset. But liabilities don’t fall out of place. They will get settled of course later but the impending liabilities such as money owed to creditors and other expenses accrued need to be considered by now.

The mutual fund NAV calculation is undertaken by using the following formula:

NAV = (Value of Assets-Value of Debts)/number of units outstanding

Here,

Value of Assets = Market value of Mutual Fund Investments + Receivables + Accrued Income

Value of Debts = Liabilities+Accrued Expenses

The market value of the stocks and debentures are based upon the closing price on the stock exchange where these are listed. Based on latest mutual fund NAV, you can base your decisions either to hold or redeem your mutual fund units.

How to Calculate NAV of Mutual Fund with example?

Let us understand from a simple example of how the allotment of mutual fund units at net asset value takes place.

Let’s say, you have decided to buy Franklin Templeton Prima Plus Fund from Franklin Templeton Mutual Fund. The prevailing price of NAV at the day of your purchase stands out to be ₹ 547. At this price, you have decided to invest ₹20,000, then you will be getting 20,000/547=36.56 units of the scheme. Note that if you are buying the units after 3 pm then the closing NAV of the next business day will be considered at the time of your purchase.

In another instance, Franklin Templeton Prima Plus Fund declares a NAV of ₹550 on a particular day, then the value at which you would be buying the units would become ₹20,108 (=36.56×550). And if you want to redeem the units from the fund after one year on the NAV of ₹560 on your withdrawal day, then the Franklin Templeton Mutual Fund will pay you an amount of 36.56×560=₹20,473.6 on that very day.

Now, you must have understood the role of NAV in allotment of mutual fund units. But you need to be clear about your financial goals first before subscribing to any mutual fund units. The more you are clear about your goals, the more you will be able to pick the right mutual fund for yourself. So, invest rationally.

Disclaimer : Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.

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