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Tata Capital > Blog > Wealth Services > What is Net Asset Value (NAV)?

Wealth Services

What is Net Asset Value (NAV)?

What is Net Asset Value (NAV)?

Summary  

Net Asset Value (NAV) represents the per-unit value of a mutual fund and is calculated at the end of every business day. It is derived from the fund’s assets, liabilities, and outstanding units, but it does not indicate whether a scheme is cheap or expensive. Understanding how NAV works helps investors know how mutual fund units are priced during purchases and redemptions and avoid common investing misconceptions. 

Net Asset Value (NAV) is the per-unit value of a mutual fund, calculated by dividing its net assets by the total number of outstanding units.

Net Asset Value (NAV) is one of the most important numbers associated with a mutual fund scheme. It tells you what one unit of the fund is worth on a particular day. However, a lower NAV does not mean a fund is cheaper or a better investment. Understanding net asset value’s meaning is essential before investing.

This guide explains the net asset value formula, how NAV is calculated, how it works when you buy or redeem units, and what NAV can – and cannot – tell you about a mutual fund.

What does net asset value mean?

The net asset value meaning is simple: it represents the per-unit value of a mutual fund after accounting for its assets and liabilities. Unlike a stock price, which changes throughout the trading day, a mutual fund’s NAV is calculated and declared once at the end of every business day.

What is the net asset value formula?

The formula for net asset value calculation is as follows:

NAV = (Total Assets – Total Liabilities) / Number of outstanding units

Here’s what each of these components means:

ComponentMeaning
Total AssetsMarket value of underlying securities, cash, receivables, etc.
Total LiabilitiesFund expenses, management fees, and other dues.
Outstanding UnitsTotal number of mutual fund units held by all investors combined.

How to calculate net asset value – Example

Suppose a mutual fund has assets worth Rs. 120 crore, liabilities of Rs. 20 crore, and 10 crore outstanding units. So, the net asset value calculation will involve the following steps:

  1. Subtract total liabilities from total assets (120 – 20) = Rs. 100 crore.
  2. Divide this figure by the total number of outstanding units (100/10) = 10.

Does a low NAV mean a fund is cheap?

No. A fund’s NAV has no direct relationship with the returns it can generate. It simply shows the value of one unit on a particular day, not whether the scheme is cheap or expensive. So, a New Fund Offer (NFO) priced at Rs. 10 is not a discount, and ‘more units for your money’ is a sales line, not an advantage. 

Also Read –  PMS vs Mutual Fund

NAV vs share price: What’s the difference?

BasisMutual Fund NAVShare Price
MeaningThe value of one unit of a mutual fund scheme.The price at which a share is trading at a given time.
How is it calculatedThrough a fixed formula.Based on market demand, supply, and numerous other factors.
FrequencyDeclared once after the end of each trading day.Changes constantly during the trading session.

Which day’s NAV applies when you buy or sell?

The applicable NAV depends on when the fund house receives and realizes your money, not simply when you place the investment request. For purchases and redemptions submitted before the prescribed cut-off time on a business day, the same day’s NAV generally applies, subject to the applicable rules. Requests received after the cut-off, or on a weekend or public holiday, are processed using the NAV of the next business day.

Also Read- Types of mutual funds in India

What is net asset value of a company?

The term NAV net asset value is also used in corporate finance, though its meaning is slightly different from mutual funds. For a company, it refers to the value of total assets minus total liabilities. This measure is commonly used during business valuation, mergers and acquisitions, and in situations such as ESOP planning.

Also Read – Net vs gross working capital: Formula and calculation

Conclusion

The net asset value of a mutual fund is calculated by dividing its net assets by the total outstanding units and is declared at the end of every business day. It tells you the value of one unit, but it does not indicate whether a fund is cheap or expensive. To make informed investment decisions, compare more than just the NAV. With the Moneyfy app, you can view the latest NAV, portfolio details, and expense ratio of any mutual fund scheme in one place.

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FAQs

What is net asset value in simple terms?

Net Asset Value (NAV) is the value of one mutual fund unit on a particular business day. It is calculated after adjusting the fund's assets and liabilities.

What is the formula for net asset value?

The formula is: NAV = (Total Assets − Total Liabilities) ÷ Total Outstanding Units. This gives the value of each mutual fund unit.

How is NAV calculated?

At the end of every business day, the fund values its investments, deducts liabilities, and divides the balance by the total number of units.

Is a fund with a lower NAV better?

No. A lower NAV does not make a fund cheaper or better. It only represents the value of one unit on that particular day.

Is NAV the same as a share price?

No. Share prices change throughout the trading day, while mutual fund NAV is calculated once after the market closes on each business day.

How often is mutual fund NAV updated?

For most mutual funds, NAV is calculated and published once every business day after the market closes and the portfolio is valued.

Which day's NAV applies to my SIP installment?

The applicable NAV depends on when the fund house receives and realizes your SIP amount, subject to the applicable cut-off rules.

Does the expense ratio affect NAV?

Yes. Fund expenses are adjusted before the daily NAV is declared, so the expense ratio is already reflected in the published NAV.
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