What Is Net Asset Value (NAV)? How To Calculate Net Asset Value Of Mutual Funds?

When you invest in Mutual Funds or unit-linked Insurance plans, ULIP or you have an equity-linked saving scheme (ESS), So in that, you are quoted with NAV. The main point of confusion that is among the investors is what is Net Asset Value (NAV)? Understanding Net Asset Value (NAV) with Example, What Is The Formula Of Net Asset Value (NAV)? How To Calculate NAV?

What Is Net Asset Value (NAV)?

If we talk about the definition of Net Asset Value so this value is per unit of a Mutual fund or ULIP So as an investor whenever you buy or sell a mutual fund, So you buy or sell at NAV price.

What Is Net Asset Value (NAV)? How To Calculate Net Asset Value Of Mutual Funds?

In one way, let’s assume that the price of the share if you invest directly in the share So you invest based on share price, And in Mutual Funds and ULIPs, you invest at the price of NAV or sell at the same price.

Understanding Net Asset Value (NAV) With Example

Let’s say it’s a fund and its total asset value is Rs 50 crores. And this fund will invest Rs 50 crores somewhere, and whatever returns it gets from it, it will return to you as an investor. So its fund owners can either find 10 investors Who can invest 5-5 crores So they have to release only 10 units But this does not happen in real-life scenarios.

What Is Net Asset Value (NAV)? How To Calculate Net Asset Value Of Mutual Funds?

Because mutual funds now have to attract retail investors They break this fund into multiple units Let’s say they launch two crore units or shares So this 50 crore amount gets divided into two crore units or shares. And you can buy multiple units or shares.

If let’s say you want to invest 25,000 Rs in any XYZ mutual fund And let’s say 25 Rs is net asset value(NAV) The value of one unit is ₹25 So you can buy a thousand units of that simply it means. so you will get a thousand units of ₹25 This is ₹25, this is your Net Asset Value (NAV).

What Is The Formula Of Net Asset Value (NAV)?

So if we want to calculate it in the formula then how is it calculated in the formula, then the formula for Net Asset Value (NAV) is given below:

What Is Net Asset Value (NAV)? How To Calculate Net Asset Value Of Mutual Funds? nav formula

Net asset value (NAV) = asset – liabilities This means the fund will invest this ₹ 50 Crore separately In stocks, or in the bonds Or it may keep some money in the form of cash. Then what will be its liabilities?

There will be some administrative expenses to manage this fund There must be office expenses, management fees That has become your liability. So assets minus liabilities divided by the total number of units (assets – liabilities / 2 ).

The total number of units is 2 crore then you will get net asset value So assets = Stocks+bonds+cash Or else he invests the fund somewhere then you will add that So for example, we take the example of an Equity Mutual Fund which invests only in stocks.

What Is Net Asset Value (NAV)? How To Calculate Net Asset Value Of Mutual Funds?

Let’s say It invests only in two stocks. Let’s say in TCS this Mutual Fund invested ₹ 25 crore And let’s say they also bought HDFC’s share And they have invested ₹20 crores in HDFC So ₹45 crores will be adjusted here. And they kept five crore cash with themselves

Read Also: A Closer Look at Fixed Income Investments

The total assets do you have will be of ₹ 50 crores. Now how much will be the liabilities of this mutual fund? One is your management fee, And you have some claims too . Somebody said that he has to withdraw his money. So those claims have to be fulfilled In the case of ULIP there are Insurance claims also So it becomes a kind of liability of the fund. But in this case, we consider only the management fee as a liability.

  • Suppose its liability or management fees are 2% per annum.So now you have to calculate per day, you will divide it by 365.
  • If we have to calculate it for 50 crores then the 0.02 divided by 365 multiplied by 50 crore its value came around 27,400 Rs.

How To Calculate Net Asset Value (NAV) For Mutaul Funds?

Let’s see how to calculate the Net Asset Value in this case, you will keep assets of ₹50 crores here. Putting all the information in the formula

Net Asset Value (NAV) Formula: Net asset value (NAV) = (asset – liabilities) / (Total Number of Units)

Asset amount is 50,00,00,000 which will get subtracted by the liability, management fees 27,400 will be deducted from it Now see the fee of one day ₹27400 is very less in front of ₹50 crores Doesn’t matter much, now we will divide it by the total number of units. The total number of units is 2 crores, So if we put two crores here, So our NAV will come out to be ₹ 24.99 that is approximately ₹25.

So suppose if you invest ₹25,000.Then you will be allotted a thousand units.So in this way, you can calculate Net Asset Value.

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