How is the NAV of Mutual Funds Calculated?

The ability to earn market-adjusted returns and maximum investment flexibility is what attracts most investors to invest in Mutual Funds. The financial instrument invests in Equities and Debts based on your investment goals and risk profile. You should consider several aspects before starting your investment journey. Net Asset Value is a crucial point under Mutual Funds.

NAV is the market value per share of your Mutual Funds. You derive this value by deducting liabilities from the total asset value divided by the total number of shares you hold. Generally, most Mutual Fund unit’s cost starts at Rs. 10 and increases with the market rise. Most popular funds have a high NAV Mutual Funds value. Let us understand NAV and its calculations better.

How is the NAV of a Fund calculated?

Calculating the NAV of your fund is simple. Use the following formula to determine your investment value:

Net Asset Value = (Total asset – total liabilities)/ total number of shares invested in

(Remember, the formula only provides accurate results if you feed in the correct variables. Get the right variables for your investment and input them accordingly.) There are typically two ways to calculate NAV Mutual Funds: daily net valuation and general calculation. Here’s a quick overview:

• Daily Net Valuation: Here, the asset value of your investment gets calculated daily before the market closes at 3:30. The market reopens with the previous day’s closing price. Your fund house employs the mentioned formula to determine your investment value.
• General calculation: Here, the asset value of your investment is the price of its equity shares. You derive the value by aggregating the cost of all individual shares. Note that this value may change as per market movements.

How is NAV relevant for Mutual Funds?

NAV helps you make informed investment decisions. You can decide to withdraw or withhold your investment by referring to this value. Many investors think that NAV indicates your fund’s performance. However, that is not true. It is merely a reference value that shows how the underlying assets have performed. Moreover, Fund’s NAV is subject to change. Hence, you should consider all investment parameters and make a practical decision.

You should also withdraw the investment when your fund attains a fair value. You can withdraw your investment gradually by opting for a Systematic Withdrawal Plan. Here you can choose a withdrawal amount and receive it regularly. Systematic Withdrawal Plan is an excellent feature under Mutual Funds. You should opt for it to exercise better control over your finances.

For example, you can invest Rs. 10 lakh in Mutual Funds for five years at an expected return rate of 7%. It is possible to withdraw any amount, say Rs 10,000. This feature helps you utilise your investment returns properly. It also ensures that you do not spend all your corpus amount together.