Net Asset Value

Net Asset Value

By Sindhuja Poorni
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Net Asset Value

Net Asset Value (NAV)

Net Asset Value (NAV) is generally associated with mutual funds. It can be defined as the sum total of the market value of the total asset minus liability values per unit. It can be also called as the “book value” or “equity value” of a firm. The company’s current assets and liability values are derived from its Net Asset Value.

Determining the NAV of a Mutual fund

The mathematical formula for NAV is,

NAV = (A-L)/n
Where A = Value of Assets, L = Value of Liabilities, n = Number or units outstanding.

For mutual funds, the NAV per unit is calculated every day based on the closing market prices of the shares that were traded on that particular day. Thus, at the end of each day the investor will be able to determine the value of the mutual fund

Buying at the Equity value

For a company, the fundamental price of a share apart from the value quoted on the stock exchange is also dependent on the company’s future performance and demand-supply scenario. So the market price will differ from the NAV.

Therefore, buying a mutual fund at its Net Asset value means that you are paying the right price of the assets. For open-ended funds, NAV gives the value of the fund to the investor only at the time of withdrawal, whereas for close-ended funds it is dependent on the daily change in market price.

DID YOU KNOW?

Two mutual funds having the same portfolio can be treated as similar, even when their NAV’s differ.

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1 COMMENT

  1. Facts mentioned in the article are informative and they certainly add to you knowledge about assets and mutual funds.Worth mentioning is the did you know part, which I had no information about,
    “Two mutual funds having the same portfolio can be treated as similar, even when their NAV’s differ”.
    Great read!

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