Net Asset Value (NAV) is the price at which units of mutual fund schemes are bought or sold. Mutual fund NAVs are calculated on a daily basis based on the daily closing prices of the underlying securities in portfolios of individual schemes after making appropriate adjustments for the scheme’s expenses. AMCs incur expenses which are known as TER (total expense ratio) for providing the services like fund management, scheme administration& servicing and distribution cost etc. The expenses are netted off in the price of the units (NAV)on a daily basis and thus the daily NAV of a mutual fund scheme which you see in the public domain is net of all expenses.
Association of Mutual Funds in India (www.amfiindia.com) declares NAV of all mutual fund schemes in India and the same can be found on their website https://www.amfiindia.com/nav-history-download
Difference between NAV and share price: Many of you may look at mutual fund NAVs in the same way as you will look at stock prices, but there is great difference between the two. The major difference between a mutual fund NAV and the stock price is that a unit of mutual fund scheme by itself has no value as mutual fund schemes derive their value from the underlying stocks or other securities in the portfolio. While the stock price depends on the market movements and also based on demand and supply of the stock, the NAV of a mutual fund scheme does not depend on the volume of purchase and redemption in the scheme. The rise or fall in the NAV depends in the value of securities held in the scheme portfolio.
You can check the latest NAVs of any mutual fund scheme from here
Difference between higher NAV and lower NAV: High or low prices may make a stock expensive (over-valued) or cheap (under-valued). However, mutual fund schemes with higher NAVs are not necessarily expensive and schemes with lower NAVs are not necessarily cheap. Mutual fund schemes are launched at par value (generally at Rs 10) and the current NAV reflects the growth in the asset value since inception of the scheme. Older schemes will have higher NAVs and newer schemes will have lower NAVs. This does not mean that older schemes are expensive and newer schemes cheap.
Do you want to see historical NAV of a mutual fund scheme? Please check the historical NAV tool on our website.
Some of you may think that the New Fund Offers (NFOs)are attractive because the units are available at par value (generally at Rs 10). As mentioned earlier, the par value of a mutual fund unit is given on the day of the purchase as the scheme is new and thereafter, from the next day onwards the NAV is derived from the value of the underlying securities in the portfolio and the accumulated profits. Two different mutual fund schemes may have exactly the same portfolio and yet one may be offered at par value (NAV of Rs 10) while the NAV of the other scheme might be more than Rs 200; the difference in the NAV notwithstanding the intrinsic value of both the schemes is exactly the same.
The growth in the mutual fund scheme NAV over a period of time is actually the relevant measure of scheme performance.
Difference between at Par Value of mutual fund NAV and share IPO price: Furthermore, one should not compare a mutual fund NFO and share IPO (initial public offering) because the pricing mechanism is very different. A mutual fund NFO is priced at par value but the NAV itself does not make it attractive or unattractive. The NAV of mutual fund scheme whether NFO or old is basically a per unit price, based on the market value of the total assets in the scheme portfolio and the number of units outstanding in the scheme.
Share IPOs are priced using a different mechanism and often we see listing gains or loss for investors based on the market price of the shares on the listing day whether it is higher or lower than the IPO price. Contrary to this, there is no such thing as listing gain or loss in a mutual fund NFO as the NAV of the scheme will depend on the market price of all the securities in the scheme portfolio.
Profit in mutual fund versus gain in shares: Investors tend to book profits in shares which may see considerable price appreciation in the hope of an impending price correction or buying the same shares at a lower rate in future. While buying low or selling high is one the fundamental tenets of investing in shares directly from the stock market the same does not apply in case of investments in mutual funds.
Investors should remember that an equity mutual fund scheme portfolio consists of many stocks of different sectors and market capitalization and therefore, the price behaviour of a mutual fund will be very different from the price behaviour of individual stocks. That is why, Mutual funds, unlike individual stocks offers diversification and should be invested purely for investment purposes for a long period of time. Mutual funds schemes which have performed well on a risk adjusted returns basis are likely to perform well in the future also.
Please also read what common myths about mutual fund NAVs are
As you have seen, investments in mutual funds should not be based on the scheme NAV. You should select a mutual fund scheme based on your short term or long term financial goals, your risk capacity and the scheme’s performance consistency. By following your investment plan instead of a price based investment approach (higher or lower NAVs) you can get far better results in the long run.