13 Things you-need-to-know-about-mutual Fund NAV

Mutual fund NAV (Net Asset Value) can be confusing, especially for new investors. Generally, investors need clarification on stock price and NAV while investing.  These two have some similarities. However, there is a key difference in the price of stock and NAV due to demand and supply. You can see there is a change in the price of stock when the demand is high. On the other hand, if the demand is low, the stock price decreases. However, this is different from NAV. Let us read 13 things you need to know about mutual fund NAV. Keep reading!

1. Understanding NAV in Mutual Funds

NAV equals the price of 1 unit of a mutual fund. It is a representative of all assets held by a mutual fund. You receive units of mutual funds when you invest in a mutual fund as it is divided into units. When a retail investor (you) invests, the amount is invested in different investment vehicles. Not all money is invested in mutual funds. They also invest in stocks whose value changes with time.

2. Focus on other factors along with NAV

While investing in mutual funds, considering NAV solely is not recommended. You must look at other factors as well such as the size of AUM, past performance, beta, alpha, and other related details.

3. Why NAV Isn't Always the Most Important Metric for Investors

Before investing, you must consider different factors about the fund, not just the NAV. All the mutual funds are not the same.

Let us assume two mutual funds, Fund A (MF-I and Fund B (MF-II). All the factors such as manager, launch date, and investment style are the same except the NAV.

MF-I has a NAV of ₹40, and MF-II has a NAV of ₹100. Both have 20% of their money invested in an ABC company. If ABC's shares rise by 20%, both MF-I and MF-II's NAV will rise by 8%. So, MF-I's NAV becomes ₹43.2, and MF-II's NAV becomes ₹108.

It may indicate that MF-II grew more. However, if you put ₹100 in MF-I at the start, you would get 2.5 units (Rs.40 each). After the rise, if you sold them, you'd have ₹108. A profit of ₹8.

Now, if you put ₹100 in MF-II, you would get only 1 unit (₹100 each). After the increase, if you sold them, you would also have ₹108. The same profit as MF-I.

4. How to find a Mutual Fund NAV?

You can find a Mutual Fund NAV online, using the below steps:

• Step 1: Visit the online investment platform.
• Step 2: Fill in the details to log in to your investment account.
• Step 3: Search for the “Fund”.  
• Step 4: The respective “Fund page” will open and you can check the mutual fund NAV under the fund's name.

5. How is AUM defined in mutual funds?

When investing, AUM shouldn’t be ignored. AUM stands for Asset Under Management in mutual funds. It is the total amount of assets managed by the fund including all the assets that mutual funds invest (including its cash reserves).

6. What does NAV apply when investors buy a mutual fund in the evening?

• If you place an order before 3 pm - The same day’s NAV is used. You will get units of mutual funds at the NAV value at the end of that particular day.
• If you place an order after 3 pm - The next day’s NAV is used. You will get units of mutual funds at the NAV value of the next day.
• If an order is placed on holidays, you will get units of mutual funds at the NAV value of the next working day.

7. What NAV is applied when selling mutual fund units in the evening?

• If you place a sell before 3 pm – The same NAV value of that day is applied.
• If you place a sell after 3 pm - The NAV value of the next day is applied.
• If an order is placed on a holiday, the NAV value at the end of the next working day is considered.

8. How often is the mutual fund NAV updated?

Updating live NAV is difficult due to complexities in tracking the values of the assets held by a mutual fund.  

SEBI mandates mutual funds to update the NAV by 9 pm every day. The NAV is updated at the end of every working day.

9. Is Considering the High NAV a Requirement for Investors

If other aspects of the mutual fund look good, then investing in it is a good idea, even if it has a high NAV. As explained before, the example showed that the NAV isn't that important if the mutual fund performs well.

Unlike stock prices, you don't need to worry about the NAV being too high. It can't be overvalued or undervalued like stock prices because the NAV is determined by the size of the Assets Under Management (AUM), not by market demand. So, if the mutual fund is performing well and fits your investment goals, a high NAV shouldn't be a big concern.

10. How do the Sensex and Nifty Impact Mutual Fund NAVs?

Depending on the type of mutual fund and the assets it holds, you can see the effects of Sensex or Nifty on the Net Asset Value of the mutual fund. Mutual funds are invested in a variety of assets. The impact of Sensex or Nifty on Mutual Fund NAV varies depending on the quantities and types of assets within that particular fund.

• Sensex: It is a market index representing 30 large and stable companies listed on the Bombay Stock Exchange (BSE).
• Nifty: It is an index representing 50 major companies listed on the National Stock Exchange (NSE), representing various industry sectors.

11. How is NAV different from a stock price?

The mutual fund NAV and stock price have some similarities. However, there’s a key difference.

• Mutual Fund NAV: The exact value of its assets is represented by the mutual fund NAV.
• Stock Price: it is the representation of the book value of a company, taking in consideration of assets and profits.

Based on demand, stock prices can change. If investors are buying particular stocks, the price rises. On the other hand, if investors are selling particular stocks, the price of the stock falls. Irrespective of demand, Mutual fund NAV doesn’t change.

This is the main reason why investors don’t consider the NAV when deciding to buy or sell mutual funds.

12. What does the NAV mean for an SIP?

Both the NAV of SIP and the NAV of a mutual fund are the same. You can invest in mutual funds through SIPs or lump sums.

• SIP: SIP is a Systematic Investment Plan. In SIP, you have the option to invest a fixed amount of money in a mutual fund.
• Lump Sum: In a lump sum, you invest a large sum of money one time in a mutual fund.

Both methods have similar characteristics of mutual funds and the NAV remains the same.

13. Does a mutual fund's NAV fall like stock prices?

Similar to stock price fluctuation, Mutual Fund’s NAV can change. Even for well-performing mutual funds, NAV may rise and fall.

Conclusion
While considering Mutual fund NAV, you must keep all the above-mentioned points to avoid any misunderstanding. It is always advisable to do comprehensive research before investing. Moreover, if you are still confused about the concepts, you can take the help of a financial expert.