What is Net Asset Value (NAV) - Meaning, Formula, Types of Calculation, Example

Gaurav Seth
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Gaurav Seth

What is NAV?

The value of the net asset (NAV) is defined as the value of the assets of the fund minus the value of its liabilities. In regards to mutual funds, the term 'net asset value' is widely used. It is a measure to calculate the value of the assets in the fund. Asset Management Companies are expected to measure their NAV at least once per business day, according to the SEBI. In the case of open-end funds, the net worth of an asset is used most frequently. By having a reference valuation, NAV helps decide which investment one might want to exit or hold in their investment portfolio.

Net asset valuation measures the market value of a portfolio. It reflects a fund's per unit market value as expressed at a per-share value. The per-share value is the amount at which fund units will be purchased or sold by investors.

The net asset value grows as the value of the investments in the portfolio goes up. Conversely, the NAV goes down as the valuation of the assets in the portfolio goes down. 

What is the Net Asset Value for Mutual Funds?

Net Asset Value (NAV) is the per-unit price of the total market value of the fund’s portfolio. It is the price at which an investor buys the units and sells the units of a fund at the time of redemption. NAV is derived by dividing the total market value of assets less the total market value of liabilities from the total number of shares outstanding. For mutual funds, NAV is calculated on a daily basis at the end of the trading day. As per SEBI mutual fund requirements, the AMCs need to update the daily NAV of their schemes by 11 pm on the AMFI’s website and their official website on the same day. The disclosure of NAV in case of FoF schemes can be made by 10 am i.e next business day.

NAV Formula

The net value estimation is fairly simple. By using the formula below, one can quickly do it.

NAV = (total asset-total liabilities)/total outstanding securities

In order to get an exact net value of assets, it is important to enter the right qualified products under assets and liabilities.

For instance, Mr. Sharma is investing in Scheme-A and Scheme-B, two separate schemes. In each of the schemes, he invests Rs 1 lakh.

Scheme-A 's NAV is Rs 10.

Scheme-B 's NAV is Rs 50.

Units to be apportioned

Scheme-A: 10000 (Rs 100,000 / 10) units

Scheme-A: 2000 (Rs 100,000 / 50) units

Returns received after a month in both schemes are 10%

Rs 11 for Scheme-A and Rs 55 for Scheme-B are the updated NAVs per unit here. The initial amount spent is Rs 1 lakh for both of the schemes. The only disparity is the number of assigned units, because the assigned units in Scheme-A are greater than in Scheme-B. Even though the NAVs are different, the returns are the same for both schemes.

NAV Calculation

Two types of calculation of net asset value exist. Those are—

1. Daily net asset valuation

All the mutual fund investment companies estimate the net value of their portfolio regularly after the stock market closes at 3:30 pm. The market reopens the day after with the prior day's closing rates. Accordingly, the fund houses subtract all the costs to get the net value of the assets for the day, using the aforementioned formula.

2. Basic calculation of the net value of assets

The total net worth of the assets is the equity share price which is measured on the basis of the accumulated cost of individual shares. This estimate gives a certain asset's market value and is subject to adjustment due to market volatility.

Frequently Asked Questions (FAQs)

Q. What is nav(net asset value) in mutual funds?

A. Net Asset Value is the per unit market value of all the market securities held in the portfolio of a particular mutual fund scheme. In other words, it is the price at which the units of the mutual fund scheme can be bought or sold at any point in time. Talking about Net Asset Value Formula, it can be simply calculated as assets less liabilities of the fund divided by the total number of outstanding shares.

Net Asset Value Formula= Total Fund Assets- Total Fund Liabilities/ Number of Outstanding Units

Q. What is NAV in SIP?

A. NAV or Net Asset Value in SIP would mean the nav of that particular mutual fund scheme in which the investment is being made. In case of SIPs in mutual funds which is a systematic way of investing in mutual funds, the investor will be getting units at different NAVs at the date on which the SIP investment is scheduled.

Investors will get different NAVs as per the market conditions on the date of SIP. If the market is rising, then the investor will get less units of the mutual fund scheme & in case the markets are down, then the investor will be getting more units with the same amount of SIP investment.

Q. What is NAV in NPS?

A. Net Asset Value for NPS or National Pension System is the per unit market value of the securities held in the portfolio of NPS Scheme. Depending on the date of investment, the NPS holders will be getting the NAV for their amount of investment as per the current market conditions.

Q. What is Net Asset Value?

A. NAV stands for Net Asset Value. It is the per-unit market value of the fund’s portfolio. NAV reflects the market value of the fund’s portfolio for a single unit.

Q.  What is the formula of the Net Asset Value?

A. The formula to calculate the Net Asset Value is:

NAV = (Total Asset - Total Liabilities) / Total number of outstanding units

Q. When is the NAV for mutual funds calculated?

A. The NAV for mutual funds is calculated on a daily basis on working days after the end of the daily trading session.

Q. What are the different types to calculate the NAV?

A. There are two types to calculate the NAV:

Daily net asset valuation.

Basic calculation of the net value of assets.

Q. What is the difference between the NAV and share price?

A. Both the NAV and share price are interlinked but they are not the same. The difference is that the share price changes on different factors like demand and supply, and other market events & news updates. Whereas, the NAV of a mutual fund changes on the basis of the performance of underlying securities in the market.

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