What is NAV of mutual funds?

Net Asset Value or NAV is an important concept in mutual funds. NAV is the price at which you buy or sell mutual fund units. NAV of a mutual fund scheme is the market value of the securities in a mutual fund scheme net of liabilities divided by the total number of units outstanding. Asset management companies (AMCs) disclose NAVs of all mutual fund schemes at the end of the day, based on daily closing prices of securities. Investors should know that mutual fund NAV are net of expenses (Total Expense Ratio), i.e. TER is adjusted (deducted) in scheme NAVs.

What is mutual fund TER?
AMCs charge expenses to investors for the services they provide like fund management, administration, marketing, distribution etc. These expenses, as a percentage of scheme assets are known as TER. The TERs are charged proportionately against the assets of the scheme and are adjusted in the scheme NAV.

How are NAVs used in mutual fund transactions?
Mutual fund transactions (buy or sell) take place on the basis of end of day’s NAV. Suppose you want to invest Rs 10,000 in a mutual fund scheme and the scheme NAV on the day of the investment is Rs 50 - the AMC will allot you 200 units of the scheme. Similarly, let us assume you have 100 units of a mutual fund scheme and the mutual fund NAV is Rs 200 on the day of redemption - the AMC will credit Rs 20,000 to your bank account, assuming no exit load.

Things to note about NAV
At the time of New Fund Offer (NFO), mutual fund units are priced at par value which is usually Rs 10. After the NFO, NAV will change (go up or down) depending on the stock market movements. If the market goes up, the NAV of equity mutual fund schemes is likely to go up and vice versa. The point here to be noted is that many investors decide the best equity mutual funds basis the NAV. They think, lower NAV is better than higher NAV, but the case is not so. Best equity mutual funds are the ones who have consistently beaten the benchmark and category returns over a long time period.

High of low NAV is no indication of valuation of a scheme, i.e. high NAV does not necessarily mean that a scheme is expensive and a low NAV does not mean that it is cheap.

The percentage change in NAVs of a scheme over a period of time expressed in compounded annual growth rate (CAGR) is a measure of the scheme’s performance.

Dividends paid by a scheme, comes from the cum-dividend NAV of the scheme. Once a scheme pays dividend, the NAV of the scheme goes down. The growth option of a scheme will most likely have higher NAVs than the Income Distribution and Capital Withdrawal (IDCW) or erstwhile dividend options. In the IDCW option, the profits made by the scheme are paid back to the investor resulting in low ex-dividend NAV while in growth option the profits are ploughed back into the scheme.

In SIPs, you buy units at different prices based on prevailing NAVs on the SIP date. Since NAVs of a scheme can move up or down depending on market conditions, you can take advantage of market volatility through Rupee Cost Averaging (RCA) which can lower the average cost of acquisition.
You will find NAVs of different mutual fund schemes on the AMC websites. You can also ask your financial advisor.

https://www.miraeassetmf.co.in/mutual-fund-scheme/equity-fund