Analysing Mutual Fund NAV

What is NAV?

What is NAV?

NAV is the value of assets less the liabilities

Net Asset Value is a more viable way of reading into the value of an investment

It calculates the value of a mutual fund, including its cash value, sans its liabilities

Term

The term Net Asset Value is most often

used in connection with closed-ended

mutual funds

The ‘per unit NAV’ of a fund indicates

how much it will cost an investor to buy

or redeem a single unit of the mutual

fund

How to calculate NAV of Mutual Funds?

Calculation of NAV

A mutual fund’s NAV is calculated

using a set formula

Calculating the total value of the mutual

fund’s assets

Deducting liabilities

Dividing the remaining figure by the number

of shares outstanding

Shares Outstanding

Shares outstanding is the total number

of shares owned by the shareholders of

the company and company officials

Excluding stock that has been

repurchased by the company

The Formula

NAV = (Total market worth of all securities

owned by the fund + liquid cash and

corresponding holdings - fund liabilities)

÷ total outstanding shares of the fund.

How NAV of Mutual Fund is useful?

For Investors

Certain investors believe NAV to be an exercise in futility, while others stress on its importance

Net Asset Value is simply the price of one of the mutual fund’s units and is indicative of the fund’s intrinsic value

When one buys units in a mutual fund, one buys them at NAV

For Financial Planning

Mutual funds are often used for Financial Planning

There are qualified professionals aiding investors in their financial planning

The importance of sound financial planning is such that there is a certificate for the position, known as Chartered Financial Planner or CFA

Financial Planners

Financial planning is designed to cater to the

customer’s requirements

Financial planners will work towards managing your

investments to achieve your goals like cash flow

management, retirement planning, or even planning for

your children’s education and marriage

Maintaining an understanding relationship with the

customer is arguably the most important task of a

financial planner, and is known as “relationship

management”.

What are the benefits of analysing Mutual Fund NAV?

Benefits of Analysing NAV

The ratio of assets to liabilities can be approached

at, which helps to determine the level of risk

NAV helps to keep a tab on individual’s risk and

thus, ensures better risk management

NAV can also be evolved to suit the specifications

of various new forms of investments, with its

numerous derivations such as Absolute Return,

Simple Annualised Return, Compounded Return,

and Compounded Annual Growth Rate

Regular Update of NAV

Calculation of NAV is usually done on a frequent basis

Regularly checking on the performance of your mutual funds with the help of an expert is all that you really need to ensure that your investments match your current objectives

An application of the NAV formula, called the Annual Total Return method is used for the measurement of the measurement of mutual fund performance

Why NAV should be considered?

Conclusion

Net Asset Value of a mutual fund indicates how well the fund manager has placed his or her bets in the market

In the case of investment in mutual funds, calculating the value is little complex. Here is where one can look at the concept of Net Asset Value or NAV

Thus, NAV is a very important tool for investors

Thank You

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