12 Reasons Why You Need to Know About Mutual Funds NAV

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NAV (Net Asset Value) is a term used to characterise the value of a mutual fund. While NAV is close to the price of a share, it is not the same. There are essential variations between the two. Although several people are curious about NAV, many are also perplexed, attempting to invest in funds based on various NAV values.

To be entirely clear on what NAV means, read the following points.

1. What is a mutual fund NAV?

Mutual funds take money from you and invest it in several investment instruments such as stocks, shares, and other securities. Units are used to categorise mutual funds. You are issued mutual fund units when you invest in a mutual fund. The NAV is a reflection of a mutual fund’s total assets.

2. Should mutual fund investors give importance to NAV?

People in India put a high value on a mutual fund’s NAV. If you’re about to invest in mutual funds and find that one has a NAV of 10 while another has a NAV of 20, you should not invest in a mutual fund with a low NAV. When investing in a mutual fund, you should consider several factors such as past success, AUM scale, alpha, beta, and so on. However, NAV should not be considered.

3. Why shouldn’t investors pay heed to the NAV?

Let’s look at two mutual funds: Mutual fund A (MF-A) and mutual fund B (MF-B) (MF-B). To illustrate why NAV isn’t relevant, consider that in our example, every characteristic of two mutual funds (fund manager, assets held, investment style, launch date, etc.) is identical, except for the NAV. MF-A has a NAV of 20, and MF-B has a NAV of 50 in our case.

Both of these mutual funds have 20% of their assets invested in the stock of XYZ. If the value of the shares of company XYZ increases by 10%, the NAV of both MF-A and MF-B will increase by 2%. As a result, MF-NAV A’s will be Rs 20.4. MF-NAV B’s would increase to 51 at the same time.

At this stage, you might think that MF-B increased by a greater margin. That is true. However, you must remember if you had invested in MF-B, you would also have to pay a higher price for each unit of MF-B.

You might think that MF-B has increased by a more considerable margin at this stage. That is correct. However, bear in mind that you would have had to pay a higher price per unit if you had invested in MF-B. If you had put Rs 100 into MF-A at the outset, you would have charged Rs 20 per unit and received five units. If you sold these units after the rise in NAV, you would have earned Rs 20. Back: 4 X 5 = 102 As a result, you would have gained a profit of Rs 2. Instead, you would have paid Rs 50 for two MF-B units if you had spent Rs 100 in MF-B. You would have gotten 51 X 2 = 102 if you sold these units after the rise in NAV. MF-A is the same as MF-B.

4. What’s the difference between AUM and NAV?

The total asset under management (AUM) of a mutual fund is the total asset under management. It contains all of the mutual fund’s assets as well as any cash it has on hand. The NAV of a mutual fund is the price of each unit.

5. When buying a mutual fund in the evening, which NAV value is taken into account?

If you order mutual fund units before 3 p.m. on a working day, you will receive units at the NAV value at the end of the day. If the order is placed after 3 p.m., the NAV at the end of the next business day will be used as the transaction’s NAV. On weekends and holidays, all orders are handled using the NAV value at the end of the next business day.

6. When selling mutual fund units in the evening, which NAV value is used?

If you sell units in a mutual fund before 3 p.m. on a working day, you can sell them at the NAV value at the end of the day. If a sale order is placed after 3 p.m., the NAV at the end of the next business day will be used to evaluate the transaction’s NAV value. On weekends and holidays, all sale orders are executed with the NAV value at the end of the next business day.

7. When is NAV updated?

Mutual funds refresh the NAV at the end of each day. SEBI allows mutual funds to update their NAV every day by 9 p.m. The AUM of most mutual funds is updated at a different time than the NAV. Of course, this is before 9 p.m.

8. Can I invest in a high-NAV mutual fund?

The preceding example demonstrated that the NAV value is irrelevant if the mutual fund is performing well.

The NAV is not the same as the price of a stock on the stock exchange. There’s no need to be worried about the NAV being overvalued. Since the NAV value is not regulated by demand, it cannot be overvalued or undervalued. In the case of stocks, demand determines the price. The size of the AUM is the only aspect that determines the NAV.

9. How do Sensex and Nifty impact the value of a mutual fund’s NAV?

The Sensex and Nifty influence on a mutual fund’s NAV is determined by the amount of money invested in companies that are part of the Sensex, Nifty, or both. Changes in the Sensex or Nifty have a huge effect on the NAV of large-cap mutual funds that invest in the country’s largest companies.

Multi-cap mutual funds invest in several companies of different sizes. Depending on the amount of large-cap assets they possess, they may or may not be affected by shifts in the Sensex or Nifty.

10. Is stock price similar to NAV?

In effect, the NAV represents the mutual fund’s book value. It is the precise value of a mutual fund’s assets.

Stock prices are often meant to represent a company’s book value. In the case of corporations, the book value will include the company’s assets and earnings. However, there is one more metric that can influence the stock price: demand. A stock’s price will rise if there are too many people interested in it. On the other hand, if too many people start selling a stock, the price will drop. In the first case, the stock is said to be overvalued, while in the second, the stock is said to be undervalued.

11. What is the NAV of an SIP?

The majority of mutual funds allow you to invest using both SIP and lump sum methods. The mutual fund features are the same regardless of which form you use. For both SIP and lump sum investments, a mutual fund’s NAV remains the same.

12. Is it possible for the NAV of a mutual fund to fall in value, as it does in the case of stocks?

Mutual funds invest in several financial instruments. There may be business stocks, shares, and so on. The worth of these things fluctuates over time. As a result, if the value of a mutual fund’s assets is lower on any given day than the previous day, the NAV would be lower as well.