What Is Nav?

The Net Asset Value (NAV) is the per unit value of the mutual fund and is an indicator of whether the fund is under or overvalued.

Before explaining how the Net Asset Value (NAV) of a fund is calculated, let us take an analogy. There is a cargo ship sailing from India to the USA. The ship can carry a maximum of 100 tonnes of goods. The ship's captain is charging a fixed cost – no matter how much he has to carry, he is going to charge a fixed $4000 for the trip. If the ship gets filled to the capacity, then the per ton cost for the people using the ship?s services would be $4000/100 = $40.

The NAV is a similar calculation, this time we are calculating not the cost per unit but the value per unit The NAV is calculated as the total value of the fund / number of units of the fund. A 'unit' is what the investor buys when investing in the fund. Just like you buy shares of a company, you buy units of a mutual fund. The 'total value of the fund' is calculated as its assets – liabilities. The 'assets' would be the market value of the shares the fund has invested in and the 'liabilities' include the costs of running the fund. The higher the market value therefore, the greater will be the NAV of the fund.

The performance of any particular scheme of any Mutual Fund is denoted by Net Asset Value (NAV). The NAVs of all Mutual Fund schemes are declared at the end of the trading day after markets close, in accordance with SEBI Mutual Fund Regulations. Essentially, the NAV is the market value of the securities held by the scheme. Mutual Funds invest the money collected from the investors in to the securities markets. The market value of these securities changes every day, and therefore the NAV of a scheme also changes on day to day basis.