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What Is Nav? What Is The Correlation Between Mutual Funds And Nav?

By Author: Swarali Chavan
Total Articles: 37

We all want our money to grow. The primary purpose of investment is this. But if you want to assess the performance of your investment vehicle, in this scenario mutual funds, the appropriate indicator would be Net Asset Value (NAV).

Before understanding how NAV works for every mutual fund type, you should understand NFO. What is NFO? When a fund house releases a new mutual fund scheme, it goes by the name New Fund Offer (NFO). It works on a first-come-first-serve basis.

What is NAV? It is per share value of the scheme. They are determined daily or usually prescribed by regulations. The mutual fund NAV has a formula in place:

NAV = Market/Fair Value of Scheme’s Investments + Receivables + Accrued Income + Other Assets - Accrued Expenses - Payables - Other Liabilities] / Number of Units Outstanding

Since the market value of securities changes daily, the NAV of the scheme also differs. NAV helps the investor to measure the success rate of the investment company. So, NAV is affected by the ups and downs in the market. When NAV is high, mutual funds perform well and vice versa.

NAV and cut-off time:

All mutual funds have purchase and redemption cut-off time. The cut-off time determines which day’s NAV will be applicable for the investment.

1) Equity funds: When you invest in equities, you are the owner of the company is owing to the investment you have made. They offer high returns and are equally high-risk funds. But you must keep guard of inflation in long-run and fluctuations in the short-run. The cut-off limit for the purchase of equity funds is usually 3 PM. If you submit your request application for equity funds before 3 PM, you are allotted units of the mutual fund scheme of the same day. In case it passes the 3 PM mark, you are assigned next day’s NAV.

2) Debt funds: They work on borrowings, and it is on this fund that almost 95 per cent of the companies rely on. The boasts of debt instruments such as Treasury bills, debentures, etc. Debt funds give the assurance of return of principal amount after the tenure and interest are calculated on a given interest rate. They provide stability to the portfolio and offer lower risk than equity funds. The cut-off time for debt funds is similar to that of equity funds.

3) Liquid funds: They offer high liquidity, which is as good as cash. Such funds are readily available to the investors and carry the least risk. They also provide better returns than a savings account. Hybrid funds are a combination of equity and debt funds. The cut-off time to buy liquid funds is 2 PM. If you submit after 2 PM on a working day, you will get the NAV of the previous day. If it is done after 2 PM, you will receive the same day’s NAV.

NAV meaning in mutual fund means the track record of the fund. In India, most of the mutual fund houses promote their schemes based on the latest NAV. Since the performance of the fund is important, it is imperative to keep track of its value. You must not only do so after investing in the securities but before it as well.

Author bio:
Swarali Chavan is an investment banker by profession. She has spent considerable time researching on NAV meaning in mutual fund. She has explained the correlation between NAV and mutual funds

Total Views: 24Word Count: 574See All articles From Author

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