A mutual
fund nav or Net Asset Value in mutual funds is similar to a share price.
Despite the
similarity between the two, there are also as many differences between the two.
In simple
language, the NAV of a mutual fund in itself should not affect your decision to
invest or not invest in a particular mutual fund.
As is the
case with shares, it is not about the price of a mutual fund nav but rather the
valuation of it that is important to analyze.
What is a mutual fund nav?
A mutual fund nav is basically the price of the particular
mutual fund scheme.
When you invest in a particular mutual fund, you are
allotted units.
The number of units is arrived at by dividing the investment
amount with the NAV.
If you invest 50,000 and the nav is 20, then you receive
2,500 units.
What
time is a mutual fund nav calculated?
An equity mutual fund scheme would include the following:
- Shares
- Cash
- Debt
- Commodities etc.
The nav of a mutual fund would include all the assets it
holds but it is not possible to arrive at the price of each asset together.
Calculating a mutual fund nav during market hours would not
be possible since equity shares keep on fluctuating throughout market hours.
Therefore, NAV of a mutual fund is calculated at the end of
the day after considering the closing market prices of all the assets held by
the mutual fund scheme.
Additional reading: Click Here to read more about what are Multi Asset Mutual Funds
What
is a good NAV for a mutual fund?
There’s no such thing as a good or bad nav for a mutual
fund.
A mutual fund nav depends on several factors like:
- Date of launch of a particular mutual fund scheme
- Which category the particular mutual fund belongs to, a pure equity mutual fund launched at the same time as a hybrid fund would most likely have a higher nav.
- Dividend options in mutual funds have lower navs than growth options in the same mutual fund schemes.
Does
NAV matter in mutual funds?
As can be ascertained by the previous point, NAV does not
matter in mutual fund.
The NAV of a mutual fund should not be the deciding factor
in whether to invest or not in a particular mutual fund scheme.
A mutual fund nav is arrived at after taking into several
factors and does not necessarily represent the performance of a mutual fund
scheme.
What
is a good NAV for a mutual fund?
There’s no such thing as a good NAV or bad NAV for a mutual
fund.
A low NAV does not mean it’s a poor performing mutual fund
and a high NAV does not mean it’s a very well performing mutual fund.
You should never judge the performance of a mutual fund
based purely on its NAV.
Difference
between Mutual Fund Nav and Share price
A share price can fluctuate throughout the day whereas a
mutual fund nav is calculated only once.
You can know the exact share price while buying and selling
but that is not the case with a mutual fund nav.
This is because a mutual fund nav is calculated only after
market hours and is not live as in the case of share prices.
A share price consists only about the company in picture
whereas a mutual fund nav would include the various asset classes it holds like
shares, cash, debt, etc.
Does
NAV change daily?
Yes, NAV changes every market day.
The nav of a mutual fund changes only once on a working
market day.
It is usually calculated by around 11 pm of the same day.
Additional reading: Click Here to read more about what are Flexi Cap Mutual Funds
What
is the difference between NAV and AUM?
NAV of a mutual fund is the price of a particular mutual
fund scheme.
When you invest in a mutual fund you are allotted units by
dividing invested amount with the mutual fund nav.
AUM on the other hand refers to Assets under Management,
this is the valuation of the assets of the particular mutual fund scheme.
AUM refers to current valuation and not invested amount.
For example if the fund has 100 cr invested with it and the
valuation of the same is 125 cr then the AUM would be 125 cr.
What
is NAV cut off time?
Mutual fund nav timing is as follows:
- 1.30 pm for liquid mutual fund.
- 3.00 pm for debt and equity mutual fund.
In both cases the transactions have to be completed before
the respective times mentioned.
If application has been submitted after the cut off time
then NAV of the next market day is applied.
Why
does NAV drop when dividend is paid?
Let’s
suppose the NAV of a particular mutual fund scheme is 15.
The
fund decides to book profits and declares a dividend of Rs 5.
The NAV
of the fund therefore then comes down to 10.
This is not the case with growth mutual funds though which is why you can notice a difference in NAV’s of a growth and dividend option of the same mutual fund scheme.
An example of mutual fund nav dropping frequently with dividend declaration can be seen in the image below.
New Sebi
rules regarding mutual fund nav
In September 2020, SEBI brought about new changes to mutual fund navs
Equity funds
An investment in an equity mutual fund upto Rs 2 lakhs would
get NAV of the same day if submitted before 3pm.
For investments greater than 2 lakhs, nav would be
applicable of the day when the amount would reach the respective mutual fund
scheme.
From 1st January 2020 onwards, all investments
would receive NAV of the day the amount is received by the respective mutual
fund scheme irrespective of the amount.
Debt Funds
An investment in a debt mutual fund except for liquid mutual
funds and overnight mutual funds upto Rs 2 lakhs would get NAV of the same day
if submitted before 3pm.
For investments greater than 2 lakhs for debt mutual funds
except for liquid mutual funds and overnight mutual funds, nav would be
applicable of the day when the amount would reach the respective mutual fund
scheme.
From 1st January 2020 onwards, all investments
would receive NAV of the day the amount is received by the respective mutual
fund scheme irrespective of the amount.
The new rules do not apply to liquid and overnight mutual
fund schemes.
Is
higher NAV better or lower?
Neither is better or worse.
A lower nav is not cheaper and a higher nav is not
expensive.
The price of a nav should never be the determining factor
whether to invest or not in a mutual fund.
For portfolio enquiries, email us with your doubts at info@themutualfundguide.com
