How is NAV calculated?

When the concern is about mutual fund investing certain technical terms become extremely essential and one such term is NAV or Net Asset Value. It fetches the market value of a per-unit of a specific share. Generally, the NAV or net assets value is calculated by deducting the liabilities from total asset value divided by the number of shares present in the portfolio. If you want to find the NAV for each unit you have to gather some information like the market value of shares and divide them from total fund units.

Moreover, the cost of the mutual funds is directly proportional to NAV which means the NAV of a popular or new investment will be greater when compared with the pre-existing mutual funds. Let us understand how is NAV calculated and why it is essential for a SIP or systematic investment planning.

The Contribution Of NAV In Performance Of Mutual Funds

One of the common mistakes most investors make is they consider NAV similar to stock price. They also believe that a lower NAV of funds indicates a cheap and comprehensive option of investment. Whereas there is no connection between the performance of a fund and NAV but NAV indicates the performance of funds in recent years. There is no way that funds with lower-NAV will perform better and are ideal for investment. Mutual fund investors must consider NAV to understand the daily performance of funds and not consider it as a solo parameter to decide the future of investments.

What Are Different Types Of NAV Calculations And How Are They Calculated?

There are two different types of NAV or Net Asset Value calculations, they are

1. Daily NAV or net asset valuation and

2. General calculation of net assets value

Daily Net Asset Valuation:

Your mutual fund investment company or their accountants will calculate the net assets value of your funds on a daily basis once the stock market closes at 3.30 pm. Your mutual fund partner will deduct the total expenses and would provide a detailed daily report of NAV using the formula mentioned below.

NAV (Net Assets Value) = Total Assets – Debits/ total number of units present in the portfolio

General Calculation Of Net Assets Value

The general calculation of net assets value is nothing but the individual price of the equity shares. However, the market value of the assets doesn’t remain the same as mutual funds are subjected to market fluctuations.

Why Investors Cannot Calculate NAV During Market Hours?

There is no way that investors can calculate the NAV or net assets value of mutual funds during market hours as the prices fluctuate every minute. The mutual fund companies will always calculate the NAV using the closed market prices of equity shares.

Investors can use the NAV to understand the daily performance of individual shares and can make better plans for investment in the future. Moreover, one should also not totally depend on NAV as it is one of the essential factors deciding the faith of the investment.