We can calculate mutual fund NAV by dividing the total net assets of the fund by the total number of units issued to investors. 

What is NAV? 

The Net Asset Value (NAV) represents the net value of an organization and it is calculated as the total value of the assets of an organization minus the total value of the liabilities it holds. It is mostly used in the context of the Mutual fund and exchange-traded fund (ETF). NAV is the price at which the units/shares of the fund registered with the U.S Securities and Exchange Commission (SEC) are invested. 

Formula to calculate Net Asset Value (NAV)

The formula to calculate net asset value is very easy and straight forward. You just have to minus the liabilities that you are holding with the Asset you have. 

NAV= (Asset-Liabilities) / total number of outstanding shares

Only the correct qualifying Assets and liabilities should be used while calculating. 

What is the basic working of a fund? 

Funds work by collecting money from the vast number of investors. And then, the accumulated capital is invested in different types of stocks and other financial securities that fit the investment objective of the fund. Each investor gets their specified shares based on their invested amount, every investor is free to buy and sell the shares. After the launch of the fund, regular Buying and selling of the fund starts, this mechanism or process to do this, requires the pricing of the fund. And this pricing mechanism is based on the NAV

When we use NAV formula to calculate? 

It is impossible to calculate the NAV during the market price because of every minute, the price of the shares changes. After taking the closing of the market prices of the securities that the funds and schemes shold into the account, we can use the NAV formula to calculate at the end of the market day. 

Let’s see the example that NAV formula works:

Suppose the market value of the securities of a mutual fund scheme is Rs 600 lakh.  The Mutual fund issues 10 lakh of rupees 10 each to the investors. So, then per unit of the fund is rupees 60.

What does a high or a low and NAV matter? 

Some distributors promote their new funds by showcasing their low NAV. They make investors believe that low Net Asset Value means getting the right deal. This happens because the investors mistakenly equate the NAV mutual fund with the price is the company’s stock, but the real fact is that both the things are entirely different. A low NAV means that the stock is available at the bargain price. This thing is also applied to the mutual fund’s nav. You can’t judge how the expensive and cheap the fund by its NAV. High Net Asset Value shows the positive performance of the mutual fund scheme. It also indicates that the scheme is in the market for a long time.

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Adrian Grant

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