Are you planning to buy mutual fund units? Do you bother to check the mutual fund NAV? Well, not sure then you should know that Net Asset Value plays a pivotal role while you take any of your mutual fund investment decision. It is the Net Asset Value or NAV which represents the market price per unit of share foretells you the number of units you are going to hold within the tenure of your mutual fund scheme.
In simpler words, NAV is the total composition of securities in the mutual fund deducting liabilities and divided by the number of shares outstanding. To be clear about the formula, let's take an overview:
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 mutual fund NAV is calculated both by the asset management company or by an accounting firm hired by the mutual fund.
Does NAV of a scheme matter?
Don't get into ambiguities by mixing NAV with stock prices? Just like stocks have shares likewise, mutual funds have NAV. As you must know that the buying and selling take place only at the mutual fund NAV so the NAV can also be treated as the book value of the mutual fund units. On the other hand, the stock prices depend on the company's fundamental value and future prospects of the company. It represents the sum of the portfolio held within a scheme.
A higher NAV means that the scheme must have performed really well or the scheme has been in the market somewhere for a long period. But you need to know that it is the NAV which has an impact on the number of units you get. You will obtain fewer units if you relatively decide a scheme with a high NAV but the investment value will remain the same. It is the performance and returns amassed by any scheme of the mutual fund which matters the most.
Let's understand by taking an example:
Look at two schemes -Scheme 1 and Scheme 2 with a NAV of ₹ 200 and ₹ 210 respectively. Let's say you have invested ₹ 22,000. You will obtain 110 units (22000/200) in scheme 1 and you will obtain 105 units approx. (22000/210) in scheme 2.
Lowest NAV Mutual Funds
As per the perspective of financial advisors, a higher or lower NAV have hardly any importance to investors. Since, they look out for those funds which deliver them the effective returns. But while going for an investment you need to compare the schemes which have identical portfolios before choosing the one that fits with your personal goals.
The pricing of NAV determines in the way described below:
Like one scheme which has been there for a while pushing the NAV to rise further as compared to the other one priced at lower NAV. This means that the investors would be getting more number of mutual fund units in the scheme with lower NAV and lesser units in the mutual fund scheme with higher NAV. No doubt, both would fetch the similar returns as the appreciation or depreciation of investments in the scheme stand similar as they have same portfolios.
Direct Mutual Fund Investment
Direct plans do not offer the commission to agents but they have a lower expense ratio. Also, take a note that the savings on commissions invested generate the extra returns over a long period of time. That is why you must be astonished to see that the NAVs of direct plans are a bit higher as compared to the regular plans. But you can also save a little on commissions and earn excessive returns over a period of time in direct plans. However, you should prefer them only if you can manage the investments on your own. In case, you require any help with mutual fund investments and completing with the formalities of any of your mutual fund, it is wiser to choose for a regular plan.
NAV Mutual Funds
Do you know that the combined prices of all the securities have a direct relation to NAV? Check out NAV of any mutual fund scheme which is calculated on a unit basis after excluding all the liabilities. If the prices of the entire securities in a portfolio held within a scheme shoot up, the NAV will also rise and vice versa. The NAV moves in velocity with the prices of the securities held within a scheme. As per the disclosure, a scheme should calculate and publish their NAVs on a daily basis.
Disclaimer : Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.
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