Mutual Fund pools the investment made by the investors and on their behalf invests in the market. NAV is the per-unit market value of all the securities held by the particular Mutual Fund schemes.
When it comes to investing, certain terms carry a significance for Mutual Fund investors. Net asset value (or NAV) is one of the most common terms in mutual fund parlance. One can calculate NAV by dividing total net assets of the fund by total number units issued to investors.
Calculate Net Asset Value (NAV)
As discussed above, NAV can be calculated by dividing total net assets by total number of units issued. To start with, total net assets of the funds can be calculated by subtracting any liabilities from the assets of the Mutual Fund and then dividing the figure by the total number of units outstanding. The amount thus obtained is the Mutual Fund’s NAV.
Formula for NAV is:
(Assets - Debts) / Number of outstanding units
The NAV of the Mutual Fund scheme is calculated at the end of every day, as the price of the securities in the market changes everyday, and so does the NAV.
Example of NAV Calculation
Let us assume a hypothetical situation to understand the calculation of NAV.
Suppose that a Mutual Fund has Rs.11 crore worth of total investments in different securities, which is calculated based on today’s closing prices. It also has Rs. 50 lakh of cash and cash equivalents , and Rs. 30 lakh in total receivables. Accrued Income is Rs. 50 thousand.
The fund has Rs.1.4 crore as short-term liabilities and Rs.3 lakh as long-term liabilities. Accrued expenses for the day are Rs. 15,000. The fund has Rs. 60 lakh shares outstanding.
Therefore, NAV will be calculated as follows -
NAV = [(11,00,00,000 + 50,00,000 + 30,00,000 + 50,000) - (1,40,00,000 + 3,00,000 + 15,000)] / 60,00,000 = [11,80,50,000 - 1,43,15,000] / 60,00,000 = Rs. 17.289
Therefore, for the given day Mutual Fund shares will be traded at the price of Rs. 17.289
NAV is the book value of the Mutual Funds schemes. To buy a particular scheme consider its performance over the years, rather than the NAV. You can do this by looking at the amount generated by the particular scheme over the years.