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Friday, February 26, 2016

MF NAV

Mutual Funds NAV
 
 

1. What is NAV?


Net asset value (NAV) represents a fund's per unit market value. This is the price at which investors buy fund units from a fund company or sell it back to the fund house. It is calculated by dividing the total value of all the assets in a portfolio, mi nus all its liabilities. The NAV of a fund is calculat ed by the mutual fund house itself or by an ac counting firm hired by the mutual fund.

2. When is NAV calculated?


NAV calculation is impossible during market hours as the price of the underlying holdings (say stocks) changes every minute.

NAV is calculated at the end of every market day , af ter taking into account the closing market prices of the securities that the fund or scheme holds.

3. How is NAV different from the price of an equity share?


In case of corpo rates, the share price quoted on the stock exchange. This price apart from the fun damentals is also depen dent on analysts view of the company's future per formance and the de mand-supply scenario. Hence the market price of a stock is different from its book value. However in the case of a mutual fund there is no concept as mar ket value for the MF unit.

Therefore, when we buy MF units at NAV , we are buying it at book value. At this time we are paying buying it at book value. At this time we are paying the right price of the assets, be it `10 or `50.

4. How important is NAV for investors?


When the amount of investment in different schemes is the same, the NAVs are irrelevant. What an investor needs to closely look at are the returns given by the scheme.

5. What does a low and high NAV in different schemes mean?


This question is best illustrated by an example. Suppose we hy pothetically invest into two schemes A and B. Scheme A has an NAV of `10 whereas Scheme B has a NAV of ` 50. We made equal amount of investment of `1 lakh each in both the schemes. Scheme A would come across as a cheaper buy because we got 10,000 units as against 2,000 units in Scheme B.Now, let us assume that both the schemes return 10% in a month. The NAV for scheme A is now ` 11 and Scheme B has an NAV of ` 55. The value of your investment in both the cases is `1,10,000. Therefore, we see that the NAV of a scheme is irrelevant, as far as generating returns are concerned. The only difference is, in the case of Scheme A, the investor gets more number of units and in Scheme B, he gets lesser number of units. For two schemes with identical portfolio and other things remaining constant, the difference in NAV will hardly matter as long as the schemes deliver the same returns.

6. What do the daily changes in NAV indicate?


Daily change in NAV of a mutual fund scheme indicates a rise or dip in the assets of the scheme.However, financial planners tell investors, that when they select a mutual fund scheme for their investments, daily changes in the NAV of the scheme do not matter. Investors should look at the annualised return of a fund over different time frames to judge its performance.

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