NAV signifies the number of units you are going to avail. The performance along with returns of the mutual fund schemes goes on to matter the most. Basically it connotes the value of mutual fund assets deducted by the liabilities of mutual funds. It could also denote the value at which you are going to sell the unit and this is if any load is applicable. This might seem to be a simple concept but still a lot of confusion exists among the users. In calculation of NAV formula will it go on to include all expenses? Would be it worthy to invest in a scheme which has higher or lower NAV. In the forums of mutual fund such queries seem to be common.
More about NAV?
NAV means the consortium of the price of all securities along with the liquid cash. After deduction of all liabilities it is being calculated on a per unit basis. If the prices of the majority of securities held by your rises then it is expected that NAV is going to rise and vice versa. The NAV has a strong relation to the prices of securities. Mandate suggests for a scheme to publish and interpret results of NAV on a daily basis.
In generic terms, NAV connotes a price that you end up paying for a mutual fund investment. It is possible to sell on NAV but the seller price could work out to be lower in NAV if there ceases to be an exit load. The exit load is calculated as per a certain percentage of NAV.
For example, in case if you plan to invest in a scheme of 10,000 with a NAV of 200. You are going to receive 10000/ 200 which work out to be 50 units. Now if the value of NAV increases to 250 and if you are planning to sell it. Then you are going to receive 12500 units ( 50 * 250) Now if the exit load stands at 1 % you are going to avail 12375 units.
Would NAV matter?
An investor might be buying and selling stocks at NAV, but they should confuse it with the market price of a stock. This is a price which is outlined by the investors present in the stock market. Once again this would depend upon the fundamentals along with the future prospects of the company. For this reason the book value of a stock could be different from the market value. Investors have no role in NAV as it works out to be the total value of a portfolio in a given scheme.
For this reason it is not beneficial to model your investment on NAV value of a scheme On comparison of a couple of NAV from two different sources would not specify a lot about the company. The total value of the schemes is illustrated which is a deduction of assets minus the liabilities.
A Higher NAV means that the company has been performing really well.