Mutual fund investors are constantly puzzled about the various financial terminologies. One of the aspects that require considerable attention by an investor is NAV formula. It is the short form of net asset value or value in relation to a single mutual fund. For sure it works out to be one of the important metrics to evaluate as fare as the performance of a mutual fund is concerned. Basically, it is the value of assets deducted by the value of liabilities on a given days and this is to be divided by the number of outstanding shares available.
This analogy can be incorporated by referring to the stock market. As per the performance of an asset the price of a share varies. Since it is seen that most of the AMCs do not go on to invest their funds. The total number of cash and asset comes under the preview of asset under management. It is going to change on a day to day basis depending upon change in liabilities, assets, the shares and price of the share in the current market. At the end of each day, it is published by a mutual fund house. For in-depth details, you can always consult an expert.
The method to calculate NAV
For a mutual fund investor NAV has an important role to play. Merely, it is an indicative value of the fund on a given day. Here you can gain an idea about the indicative number of shares in relation to the fund. Basically, it is the total number of shares that are available divided by the number of units.
Let us compare it with an example. For example the value of a mutual fund is 6,00,000. It has about 10 lakh units of Rs.10 each. In such cases the NAV is expected to be Rs.60.
NAV is not that important, but people in India do give a lot of importance to NAV. A new fund is expected to have lower value than the other funds. As far as the general perception among the masses is concerned, the best time to invest would be during the phase of lower value. At the same time an investor needs to bear in mind that the asset value of a fund should not be the main criteria for the choice of a fund.
As an investor you should not give a lot of consideration to mutual funds. Both do have the same portfolio expect in terms of the asset value. One of the funds has a NAV value of 30% whereas the other one has 60%. In fact both of them have gone on to invest 20% of their funds in a company ABC. On general assumption it might seem that the fund has provided excellent results but this is not the case. If you have invested Rs.300 then you might have got 10 units and if you would have gone on to sell it you might be getting Rs.306 a profit of Rs.6.