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Understanding All About NAV in Mutual Funds

Updated On Sep 11, 2021

A mutual fund is an investment type in which many investors pool their money to buy a portfolio of bonds, stocks, equities, and other securities. One of the most popular investment types, mutual funds, are a professionally-managed investment scheme. It is extremely important to have a thorough understanding of mutual funds concepts before investing. So, if you have been thinking of investing in mutual funds, make sure you research well before doing so. Moreover, ensure that you know all about NAV. 

What is NAV?

NAV is net asset value. NAV is the value of the assets of the fund minus any liabilities and expenses. In other words, NAV or net asset value of a mutual fund is a fund's market value per unit. It is calculated by dividing the total value of all portfolio assets, subtracting all its liabilities.

How Is NAV Calculated?

The calculation of NAV is done at the end of every market day. For calculation purposes, the closing market prices of the securities in its portfolio are considered. It must be noted that when choosing a mutual fund for investment, daily changes in NAV do not matter. Rather, it is advised to look at the annualised return of a fund over different time periods so as to estimate the fund’s performance. 

Difference Between NAV & Market Price

The major difference between NAV and stock price is that mutual fund NAV does not change throughout the day as compared to stock price that fluctuates by the second during stock market trades.

There is a change in NAV each day. It is calculated after markets close. As an investor, it is extremely important for you to learn when the fund priced since it can change the purchase or redemption price. Let us understand the same in a better way through an example. 

For instance, if you are purchasing a mutual fund today, you may be actually purchasing at an NAV price which will happen at the end of the subsequent day. 

Things to Note About Mutual Funds NAV

Here is a list of key things to remember about mutual funds NAV:

  • NAV is a reflection of the price composition of all the holdings a mutual fund has in a scheme.
  • In a close-ended scheme, the price of fund units is determined by the supply and demand. 
  • When the fund is traded at a price lower than the NAV, it is called discount. Whereas, when a fund is traded at a price higher than the NAV, it is called premium.
  • NAV of mutual fund units experience price changes from one day to another. It is advised to hold mutual funds for a longer period to ensure viable investment options in the long run. 
  • NAV does not reflect the value of any interest and dividend paid to investors.
  • NAV is the most vital and a highly useful metric that investors keep in mind to make their decisions with regards to mutual fund investments.

Having said that, make sure you give NAV the importance it desires. To uncover more about NAV or net asset value, you can get in touch with our InsuranceDekho experts. 

Also read: What Are Mutual Funds With Insurance Cover?

Is Mutual Fund A Better Investment Than Stocks?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.             

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