What is net asset value (NAV)?
Simply put, NAV is the value or the price of each unit of a mutual fund (MF) of a particular scheme. It is a function of the total value of all the underlying securities and the number of MF units that the scheme has. For instance, if a particular scheme has issued 10 lakh units and the total value of its holdings is ₹100 crore, the NAV would be ₹1,000. Just like the value of each share is reflected by the share price, the value of the MF unit is the NAV.
Why does the NAV change?
The NAV depends on the value of all the underlying securities that the scheme owns. Typically, share price tends to change everyday and hence, the NAV also changes to reflect the change in the price of its holdings. Also, NAV of debt schemes do not typically change as much as those of equity schemes on a daily basis since value of debt securities do not fluctuate much unless there is a major trigger.
Do MFs disclose NAVs daily?
It's mandatory for MF houses to disclose the NAV on a daily basis. However, unlike stocks whose prices are updated on a real-time basis, MFs declare the NAV at the end of the trading session everyday. Every MF house has to update and disclose the NAV on its website and also on the website of the Association of Mutual Funds in India by 9 p.m. everyday though certain categories of funds are given more time to declare their NAVs.
How is NAV ascertained when an investor buys or sells MF units?
Funds have a “cut-off time” that is typically 3 p.m. — for liquid funds it is generally 2 p.m. — and the NAV at which the transaction would be executed depends on the time of the transaction. If, for instance, an investor wants to purchase or redeem MF units and puts an order at 1 p.m., then the units would be allotted/sold at the NAV that would be declared that day. Any order later than 2 p.m. would be executed at the NAV that would be declared the next day.
While fund houses do accept redemption or purchase applications post the cut-off time, the NAV that will be taken into consideration would be that of the next day.
