What is an NAV (Net Asset Value)?

January 22, 2019
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NAV (Net Asset Value) is the value of a single unit in a mutual fund. Let’s clear this concept with an example .

Let’s assume the above is the portfolio of a Mutual Fund scheme. They have purchased 900 shares of Yes Bank. The price of one share of Yes Bank is Rs.200/-. The total purchase amount will come as Rs.1,80,000/-. Like this they have purchased the shares of Siemens and Lupin. The total purchase is Rs.5,40,000/-. And there is a cash holding of Rs.20,000. Cash holding means the cash portion in a Mutual Fund scheme that they hold. They can use this cash for the redemption requirements from the side of the investor or they can use this cash for a buying opportunity that may come in the near future. For these reasons they can allocate a certain portion of their portfolio in cash.  The total of the above portfolio including cash holdings is Rs.5,60,000/-.

What about expenses? Suppose this  Mutual Fund scheme has an expense and liabilities of Rs.10,000/-. We have to deduct this Rs.10,000/- from Rs.5,60,000/-.  The final amount is Rs.5,50,000/-.

Now, shift your focus into Number of share column. Total no.of shares is 2000. This no. Of shares are called no.of units. We want to calculate the value of one unit. How to calculate? Simple. The total value of all the assets divided by the no.of units.

So, 5,50,000/2000 this will come as 275. This is NAV. NAV is the value of a single unit in a Mutual Fund.

Points to Remember

1. NAV is the value of a single unit in a Mutual Fund.

2.NAV = Current Value of Assets – Expenses ans Liabilities / Total No. Of Outstanding Units

3.NAV is calculated on each business day.

4.We can track the performance of a Mutual Fund scheme through its NAV

5.As the market prices of securities changes, NAV of a Mutual Fund scheme also changes.

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