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Guide to Mutual Funds

Net Asset Value

When you decide to purchase a mutual fund, the cost of 1 unit is shown in Net Asset Value or NAV. That we all know right! But how are they calculated and what is the importance? Let us discuss the same over here. 


NAV is the market value of all the securities held by the mutual fund scheme. In other words, it is the per-unit market value of all the securities held by the scheme.


Thus, it is calculated as:


NAV = Net asset value [Assets – (Liabilities + Expenses)]/ Total number of units


It is calculated every day and hence changes daily. 

Usually, during the new fund offer (NFO), the NAV of a mutual fund is fixed at ₹ 10. Subsequently, when the fund’s assets are allocated, the NAV of the mutual fund continues to go up and down. 


Is the NAV important for investors?

NAV is the price at which you buy a mutual fund. However, it should not be a significant factor to look at while making a purchase decision. 



NAV neither reflects the future prospect of the scheme nor its potential. 

It is an innate human tendency to opt for mutual funds with cheaper NAVs. However, it is important to keep in mind that mutual funds with higher NAVs have been around for a longer period and have performed well to reach such a high NAV. 

It is important to remember that in investment, the potential of a fund is not linked to its price. 

Alternatively, it is also important to remember that the lower NAV of a mutual fund is not an indicator of the bad performance of the fund. It is possible that the fund has been launched recently, or it is still trying to find a footing in the market. 


Let us compare the NAV and return of Kotak Bluechip Fund (Growth) and Axis Bluechip Fund (Growth). Both these funds are top-performing equity funds in India. 



Data were taken on 30.9.2021


As you can see from the above table, both these funds fall under the same category. But the NAV of Kotak Bluechip Fund is more than 8 times that of Axis Bluechip Fund. However, it is clear that the return of both these funds is more or less similar. One of the main reasons why the NAV of Kotak Bluechip Fund is much higher is because it was launched 7-years before the Axis fund. 


Why is NAV useful for you?

There are mainly two reasons why NAV is important for you.


1. This is the buying price. NAV determines how many units you are allotted. 


2. You can book your profits when NAV goes up. Hence, it is a good idea to track NAV to decide when you want to exit. On the other hand, when the NAV dips lower, your investment may be at a loss. In that case, it will be a good idea to wait for the NAV to go up before redeeming the fund. 

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