What is Net Asset value?
The Net Asset Value of a mutual fund is the total market value of the holdings of the mutual fund less its liabilities, such as expenses, management fees, etc. This is calculated on a daily basis.
What this means is, if the mutual fund were to be dissolved or liquidated, by selling off all the assets in the fund, on that specified date, the Net Asset Value is what all the holders of the mutual fund will collectively own and will be given this amount in proportion to their holdings.
You can estimate your share of the holding of the mutual fund by the Net Asset Value per unit. This is the value represented by the ownership of one unit in the fund. It is calculated simply by dividing the Net Asset Value of the fund by the number of units.
Commonly Net Asset Value is always referred by its unit value rather than by the total Net Asset Value of the fund.
How is Net Asset value calculated?
Net Asset Value is calculated as follows:
Net Asset Value = (Market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued) - (Amount due on unpaid assets + Expenses incurred but not paid + Management and other fees)
This is how the above are calculated
Valuation of marketable shares/debentures: The last or closing market price on the principal exchange where the security is traded
Valuation of illiquid and unlisted and/or thinly traded shares/debentures: For shares, this could be the book value per share or an estimated market price based on performance of other shares in the industry. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity
Accrued dividends/interest: Companies announce dividends, however, pay it at a later date. If a dividend is announced, then the announced dividend is taken as the accrued dividend. Similarly, interest is payable on debentures/bonds in a pre determined frequency at a pre determined rate. Therefore for every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date.
Expenses including management fees, custody charges etc. are calculated on a daily basis. The management fees is as per the declaration in the offer document of the mutual fund
