Mutual Funds Day 11: NAV

NAV or Net Asset Value is an important concept in Mutual Funds. Most customers buy a mutual fund for a specific amount and for a specific period. For example, Rs25000 SIP every month. They are not really worried about the price of each unit and the number of units allotted.

Since most MFs are linked to stock markets, the value of the funds will either go up or down as per the stock’s movement. Net Asset Value (NAV) is a measure of the final value of each unit of the mutual fund. If the NAV is Rs600 then a Rs25000 contribution will fetch you 41.6666 units i.e. (25000/600).

The units allotted to you do not change unless you buy or sell (for a growth fund). Whereas the NAV changes every day based on the closing price of each component stock (Equity funds).

As an investor, you need not really worry about how the NAV is calculated. But you should definitely know that when you multiply the NAV by the Number of Units you will get the total asset value

Total Asset Value = Net Asset Value X Number of Units

If the fund is outperforming the NAV increases, and if the fund is underperforming the NAV decreases. It is quite normal for an equity-based mutual fund to have a fluctuating NAV. As long as the Investment objective & the Goals are met you need not be really worried about the volatility.

But suppose there are red flags, steep underperformance, or critical issues like “Change of Fund manager”, Fraud, Insider Trade Accusations, Front Running, Malpractices, or Misappropriations. In that case, you may not realize it until it is too late. A better alternative would be to sign up via a dedicated Financial Advisor who would track these for you. Also, ensure you are meeting your FA as frequently as possible so that your investments remain healthy.

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