Most of the mutual fund investors remain confused about different financial terminologies used in mutual funds. One such terminology is NAV in mutual fund and you should have proper knowledge and understanding about the same to select the right mutual fund from the market. In simple words, NAV is the shortened form for Net Asset Value. When it is read with mutual fund, it is the per share market value of the fund. This value is calculated by deducting values of liabilities from values of assets per unit on a day; NAV = (Values of assets value of liabilities)/ number of outstanding shares.
NAV is not like stock price
Good numbers of investors treat NAV and stock price as the same. But NAV is entirely different from the stock price that changes by the second during stock market trades. NAV does not fluctuate by second by seconds and it remains the same throughout the day. It changes on a day to day basis in accordance with the change in assets, liabilities and the total numbers and price of the share in the market. it is calculated at the end of every day after the closing of the market. The general concept is that lower the net values make the best time to invest and any new fund comes with lower mutual fund nav than the older ones.
NAV and fund performance
NAV is just the indicator of per share market value of the fund and it is not an important factor to judge the performance of the fund. So keep in mind that higher the NAV doesn’t mean that the fund has better performance in the market. Performance of the fund depends on various other factors including the reputation of the firm, success records of CEOs, the performance of the management, growth of the company and more. So, it is important to study the company than just looking at the NAV of the fund.
Importance of NAV for investors
Most of the investors don’t give much importance to NAV of mutual funds. These values are irrelevant when different schemes are provided with the same amount of investment. Just think that you make an equal amount of investment on funds with NAV of Rs. 10 and Rs. 50 and both give returns of 10 percent in a month. Here both the funds give you the same returns and the difference occurs not in the values and just in the numbers of funds. You hold more numbers of units on the fund with cheap NAV and less units of funds with higher NAV.
Rate of returns is more important than NAV
So, it is very clear that the rate of expected returns is more important than the NAV of the mutual fund. Daily changes in the mutual fund nav indicate the rise and fall in the assets of the scheme. Financial planners and experts recommend the investors not to give importance to daily changes in the NAV. It is a good idea to look at the annualized returns of the fund for different periods to judge the performance of the fund since NAV is not a good indicator of the same.