NAV Of Mutual Funds and it"s Calculation ~ ecoiq4u

NAV

NAV Calculation

Summary
In this article we will discuss the meaning of NAV,it's calculation and its uses.

What is NAV

Net asset value indicates the per unit price of mutual funds.

NAV is calculated by subtracting total liabilities from the total assets of the company and then dividing it by the total number of issued units of the fund. The asset includes the total market value of the investment, cash, cash equivalent, receivables, accrued income. The Liabilities includes, money owed to lending banks, pending payments, dividend to be paid to the investor, and variety of charges

Let’s calculate NAV in the following case:-

“AMC” a mutual fund company started a fund .it got an investment of 5lakh from the investors X, Y, Z, and took a loan of 5lakh.AMC invested 10 lakhs in some share and issued 50 thousand units of the funds.

After one year they got the return of 10% i,e 10thoudand and dividend of 3thousand rupees, during the same year one of the initial investor “X” with drow rupees 10 thousand.

NAV calculation = (Total Assets –Total Liabilities )/Number of outstanding units

(Total market value of the investment of the investment +cash inflows ) -(Loan amount +(Cash outflows +Payment of dividend to the investor) /50,000 units of the fund

=(10,10,000+3000)-(500000+10000+3000)/50,000

=5,00,000/50,000

=10

FEATURES OF NAV

NAV is calculated at the end of every business day and changes accordingly

Commonly when mutual fund starts with a nav of 10, but not in all cases.

When the NAV of a fund is high it doesn’t mean it can guarantee a good return, it indicates that investors have faith in that fund and the fund is been around for a while. Higher NAV means the fund has performed well in the past.

One cannot say that if the NAV of the fund is low then it’s attractive. We can use NAV for the relative reference.

If the NAV of the fund is continuously increasing that means the company is managing the fund very well and

You should not confuse the prices of individual share with the NAV, NAV and the share prices are not interlinked.NAV is calculated as the mutual fund company based upon its own transaction whereas the prices of a share calculated on different criteria.

CUT OFF TIMING OF NAV

If you execute your purchase order before 1 PM on a business day, the company will a lot you NAV of that day. If you execute your order after 1 AM you will be allotted the NAV of the next day. For liquid and overnight fund, the cutoff time is 12.30 PM.

The relation between SIP and NAV

SIP AND NAV

Let us assume that you have been doing a SIP of 5000 every month in a mutual fund.
Following illustration, we calculate how the change in NAV affects the investment

SIP=5000
NAV of january=100
number of units allocated to you =SIP amount /NAV of current month

=5000/100=50
If you continue with your SIP you will get more number units when the market underperforming and less unit when the market is at the peak,