5 things to consider about the NAV in your mutual fund investment?

1. What is a mutual fund NAV?

The NAV of a mutual fund is its Net Asset value or the cost of per unit of the mutual fund investment. NAV is calculated by deducting any liabilities of the funds from the total value of all the cash and securities in a fund’s portfolio, and  then dividing it by the number of outstanding shares. The NAV is an important number as it tells you how much each share of the mutual fund investment is worth. The NAV is calculated once at the end of each trading day based on the closing market value of the securities held by the mutual fund. The formula for calculating the NAV is:

NAV= (Total Assets-Total Liabilities)/ total number of outstanding shares.

The NAV keeps changing since the prices of stocks held by the mutual fund keeps changing.

2. What is the difference between the NAV and AUM?

The AUM of a mutual Fund is the total of all Assets under management of the fund. This Includes all the assets in which the fund has invested and the cash held by it as well. However, the NAV is calculated after the expenses and liabilities are paid off from the total of all assets.  Your mutual fund investment is nothing but the number of units you hold of the mutual fund at the prevailing NAV.

3. Which NAV is considered while buying a mutual fund in the evening?

When you are purchasing a mutual fund investment after the cut off time of 3 pm, then the NAV of the end of the next day is considered. If you purchase the fund before 3 pm then the NAV of the fund on the same day is considered. If a purchase is made on a holiday, then the NAV of the next working day is considered.

4. Which NAV is considered while redeeming a mutual fund in the evening?

When you sell units from your mutual fund investment in the evening after 3 pm, the NAV of the next day is taken into consideration. However, when you sell or redeem the mutual fund before 3 pm then the sale price is the same day’s NAV.

5. Should you be concerned about the NAV in your mutual fund investment?

You may feel that since mutual fund investment in a scheme with low NAV helps you buy more units, it will mean higher returns. Nothing can be further away from reality. Low NAV does not guarantee high returns. The real indicator of the returns of a fund are the fund manager’s expertise, the expense ratio and to some extent its performance over the years. If it is a new fund then you should consider the performance of its holding, the companies or sectors that the fund invests in.