Introduction To Net Asset Value

NAV stands for Net Asset Value i.e. NAV means the value of total assets. Net asset value, or NAV in any mutual fund, is derived by subtracting the liabilities from the total of the market value of all stocks in the portfolio, including cash, divided by the total number of units remaining.

The NAV is the total asset value (excluding expenses) per unit of the fund and is calculated by the asset management company (AMC) of that fund at the end of each day's business. On any day, if that mutual fund is terminated, then the price that the unitholder gets in exchange for each unit in that mutual fund is the same day's NAV of that unit. In a way, one can say that NAV is the book value of a unit of any mutual fund.

The curves increase according to the value of the portfolio: The base value of most units in mutual funds is Rs 10 or Rs 100. Every business day, the NAV of the unit keeps increasing according to the market value of the fund's portfolio.

Importance of NAV: NAV is a unit of growth of a mutual fund. If you invest in a fund at Rs 12 per unit NAV and after one year, if the NAV of that unit becomes Rs 15 per unit, then that fund has grown by 25%. This assumption is wrong that a mutual fund with a low NAV will give good returns and a fund with a high NAV will give a low return. You can tell how the fund has given returns in the past from the NAV of any fund, but it cannot be told by looking at how the fund will return in the future.