What Is NAV or Net Asset Value

By | July 4, 2016

Do you know what is Net asset value (NAV)? If you are looking for the meaning of Net asset value (NAV) and discovered this article, then let me tell you that you are at the right place. Today I will share the true meaning of NAV and also how to calculate Net asset value (NAV) for Mutual Fund or ULIP plans.

Net asset value (NAV) Meaning

If you are aware about the concept of units in mutual fund, then it will be very easy to explain NAV. Generally every SIP or Mutual Fund is transacting based on UNITs. Now for a particular fund, when you invest your money, you are actually buying some units of that fund.

Now how the units are calculated? Every Fund has a large corpus, which is nothing but the total money collected from all investors. Now all the money is kept in share market and that will either grow or decrease. The fund manager, then allocate a Face Value by dividing the entire fund corpus with which every investor can get the number of units of shares of the fund. This is nothing but the unit of every fund.

Now, if you divide this corpus with the total units available, it will return a value which is nothing but the Net asset value (NAV). Now if your fund perform well, your NAV will increase and vice versa.

Formula to calculate Net asset value (NAV)

Net Asset Value (NAV) = (Assets – Debts) / (Number of Outstanding units)

Assets = Market value of mutual fund investments + Receivables + Accrued Income

Debts = Liabilities + Expenses (accrued)

In case of mutual fund, every day the NAV need to calculate & publish as per SEBI guidelines after deducting the expense ratio of the fund.

Simple example of Net asset value (NAV)

Let’s consider the fund corpus amounts is Rs 1,000 and there are few debts/charges of Rs 200. The face value of every unit is Rs 10. In such a case, the NAV of this fund will be as below.

  • Debt/Charges = Rs 200
  • Net value of the fund = ( 1,000 – 200 ) = Rs 800
  • Number of Units = 800 / 10 = 80
  • Net asset value (NAV) =  800 / 80 = Rs 10

Now, in case the market on rising side and the net value of the fund increases to 1000. In that case the NAV calculation will be.

  • Net asset value (NAV) =  1000 / 80 = Rs 12.5

Let’s say after 5 years you are planning to redeem your units. And the current NAV is Rs 16. In that case you investment amount will grow up to = Rs 16 X 80 units = Rs 1280. A profit of Rs 280.

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