How to Calculate the Net Asset Value of a fund

Are you a prospective investor with surplus amounts to invest in Mutual Funds? If you are, then like any other individual who is planning to invest in Mutual Funds, you would initially surf the web, look at some tables and data related to various schemes of different funds in order to gather information about the best performing ones.

Hence, the question arises, what is NAV? Net Asset Value is fund's market value per unit or simply the price it would fetch in the marketplace. Every Mutual Fund unit has a NAV just like share has a price. It is calculated by subtracting the total value of all the assets in a portfolio, minus all its liabilities, which is then divided by the outstanding shares.

They are also referred as the book value because it uses the book values of assets and liabilities of the securities.

NAV for a portfolio is calculated at the end of every market day. While doing so closing market prices are taken into account, which change daily due to market fluctuations. For a Fund, all expenses and liabilities are deducted, and the remaining value is divided by number of units in the fund.

NAV is essential for tracking the price movements, but on the contrary, not considered a reflector of performance. Therefore, performance graphs use NAV prices, but higher NAV does not always relate to higher performance or return earning capability.

This implies that daily NAV is irrelevant and it is often suggested to regard annual return over different time frames to be a better performance measure of the fund.

For calculation of liabilities, taxes payable of all kinds, deferred dividends distributions etcetera. Assets exclude intangible assets. If investors find themselves confused, they can look into fund prospectus, which includes all the details related to NAV calculations, and list down assets and liabilities or consult advisors.

NAV is relevant for only open-end fund schemes that continuously offer new units to the public. It is beneficial determinant of share price movements. For close-end schemes i.e. those which have a stipulated maturity period and share values are determined in the exchanges. NAV of such funds are calculated by price per share multiplied by the total number of shares.

How much to rely on NAV? Answer is simple, only to the extent to check price levels and liabilities. If value of asset holding increase of the scheme or capital gain or dividend distribution takes place, NAV also change accordingly. Consequently, change in NAV does not matter to unit holders.

NAV data can be obtained from different sources; websites such as AMFI, Moneycontrol.com etc. for all schemes and obtaining NAV calculators in not a big problem. Simultaneously, fund pricing is done and a Mutual Fund NAV assists both the existing investors to check price levels and the new investors to know the intrinsic value of the fund, thus helping you take a wise decision.