Net Asset Value (NAV) is a term used to describe the per-unit value of a mutual fund scheme. It represents the market value of all the securities that are held by the mutual fund scheme, minus the liabilities of the scheme. The NAV is calculated on a daily basis and is expressed as the value per unit of the scheme. Investors use the NAV to determine the profitability of the investment and to calculate the return on their investment in the mutual fund.
The formula for calculating the NAV is:
NAV = (Value of securities held by the scheme + Accrued Income – Liabilities) / Number of outstanding units
In simple terms, the NAV is calculated by dividing the total value of the mutual fund scheme’s assets by the number of outstanding units. The NAV of a mutual fund scheme is calculated at the end of each trading day.
The NAV of a mutual fund scheme is affected by various factors such as the performance of the underlying securities, changes in interest rates, and market conditions. When the value of the securities held by the scheme increases, the NAV of the scheme also increases, and when the value of the securities decreases, the NAV of the scheme decreases.
It is important to note that the NAV of a mutual fund scheme does not represent the return on investment. The return on investment in a mutual fund scheme is calculated by subtracting the purchase price from the sale price of the units, including any dividends or distributions, and dividing the result by the purchase price.