13 Things You Need To Know About Mutual Fund NAV

Key Highlights

• NAV stands for Net Asset Value in a mutual fund, and it represents the price per unit of the mutual fund.
• Every working day, NAV is updated. The NAV mutual fund update time is 9 PM.
• As the price of the underlying securities in the fund portfolio changes daily, the mutual fund's NAV fluctuates.

Essential Points You Need to Know About Mutual Fund NAV

You should know these 13 things about mutual fund NAV:

1. Understanding NAV in Mutual Funds

Net Asset Value or NAV in mutual funds represents the per-unit price of a fund. It is calculated by dividing the total value of the fund’s assets minus liabilities by the number of outstanding units. For example, suppose a mutual fund has assets worth ₹100 crore and liabilities of ₹10 crore, making the net value ₹90 crore. If the fund has nine crore units, then the NAV is ₹10 per unit. Investors buy and sell mutual fund units at this NAV, which changes daily based on market performance.

2. Looking Solely at the NAV is not Advisable

Considering only the NAV of the mutual funds is generally not necessary. In India, a common misconception is that a lower NAV is better, particularly since newer mutual funds usually have lower NAVs than older ones. This misconception has led to instances where investors sell their old mutual fund units to invest in newer ones based on NAV alone.

However, when considering mutual fund investments, looking solely at the NAV is not advisable. Instead, it's important to consider various factors such as past performance, the size of Assets Under Management (AUM), alpha, beta, and other relevant details.

3. Understanding Why the NAV Might Not Be the Most Important Thing for Investors

Not all mutual funds are the same, and before investing, you should not judge them only by their NAV.

Consider two funds, Fund A (MF-A) and Fund B (MF-B). They are identical in every aspect: same fund manager, investment style, and launch date. The only difference is their NAV. MF-A has a NAV of ₹20, while MF-B has a NAV of ₹50.

Both funds have 20% of their money invested in company XYZ. If XYZ’s share price rises by 10%, both funds will see a 2% increase in their NAV. This means MF-A’s NAV goes from ₹20 to ₹20.4, while MF-B’s NAV rises from ₹50 to ₹51.

At first glance, MF-B seems to have grown more. However, in reality, the growth percentage is the same. For example, if you invested ₹100 in MF-A, you would get 5 units (₹20 each). After the increase, each unit is worth ₹20.4, so your total value becomes ₹102, giving you a ₹2 profit. The same percentage growth applies to MF-B as well.

4. Where to Find a Mutual Fund NAV?

You can find this information on the respective page of that mutual fund on an online investment platform. For example, you want to know the NAV of the mutual fund ABC Bluechip Fund.

Step 1:
Visit the online investment platform. Step 2:
Log in to your investment account by filling in the necessary details. Step 3:
In the search bar at the top, type ‘ABC Bluechip Fund’ and press enter. Step 4:
Now, the ABC Bluechip Fund page opens. The mutual fund NAV can be found under the fund's name.

5. What is AUM in Mutual funds?

AUM should not be ignored when investing. In mutual funds, AUM stands for Assets Under Management, which is the total amount of assets managed by the fund. This includes all the assets that the mutual fund invests in, as well as its cash reserves.

6. What is the NAV of a Mutual Fund if Investors Buy it in the Evening?

Suppose investors submit a mutual fund purchase application in the evening after the SEBI-mandated cut-off time of 3 PM for equity and debt funds; in that case, they receive the next business day’s NAV. As per SEBI’s circular, effective January 1, 2021, the applicable net asset value of the mutual fund is based on the day the fund house actually receives and can utilise the investment amount, regardless of investment size. For liquid funds, the cut-off is 1:30 PM. So, evening purchases typically result in NAV allotment of the following working day, assuming funds are credited post cut-off.

If investors place a mutual fund order in the evening before a holiday, after 3 PM for equity and debt funds, the transaction is processed on the next business day, and the NAV of that day applies. Since banks and AMCs don’t process payments on holidays, the fund house receives the money only on the next working day.

7. What NAV Value is Taken into Account When Selling Mutual Fund Units in the Evening?

It works the same way when you buy units. If you sell units of a mutual fund before 3 PM on a working day, you will sell them at the NAV value of that day. If the order to sell is placed after 3 PM, then the NAV at the end of the next day will be used as the NAV value for the transaction.

When a selling order is placed on a holiday, the NAV value at the end of the next working day is considered.

8. NAV Mutual Fund Update Time

The NAV is updated at the end of every working day. SEBI requires mutual funds to update their NAV by 9 PM every day. However, mutual fund NAVs aren't updated live due to difficulties in constantly tracking the values of the assets they hold.

9. Are Investors Required to Consider the High NAV?

If other aspects of the mutual fund look good, then investing in it is a good idea, even if it has a high NAV. As explained earlier, NAV itself is not the key factor, provided the mutual fund performs well.

Unlike stock prices, you don't need to worry about the NAV being too high. It can't be overvalued or undervalued like stock prices because the NAV is determined by the size of the assets under management, not by market demand. So, if the mutual fund is performing well and fits your investment goals, a high NAV shouldn't be a big concern.

10. The Effect of the Sensex and Nifty on the NAV of Mutual Funds

The effect of the Sensex or Nifty on the NAV of a mutual fund depends on the type of fund and the assets it holds. Mutual funds invest across different asset classes, and their NAV movements are linked to the composition of their portfolios.

Sensex: An index of 30 leading and financially strong companies listed on the Bombay Stock Exchange (BSE).

Nifty: An index of 50 major companies listed on the National Stock Exchange (NSE), spread across multiple sectors.

Effect on NAV: If a fund invests heavily in companies included in Sensex or Nifty, its NAV will be more directly affected by fluctuations in these indices. Large-cap mutual funds, which focus on top companies, tend to mirror these movements closely. In contrast, multi-cap funds experience varying impacts based on the proportion of large-cap stocks they hold.

Even mid-cap and small-cap funds can feel indirect effects, as large-cap market shifts often influence overall market sentiment and valuations. Thus, the NAV of almost all equity funds may, in some way, be influenced by changes in Sensex and Nifty.

11. NAV and Stock Price

The NAV of a mutual fund and the stock price of a company have some similarities. However, there's a key difference.

The NAV is like the book value of a mutual fund, representing the exact value of its assets. On the other hand, a stock price is supposed to reflect the book value of a company, considering its assets and profits.

However, the stock price can change based on demand. If many people want to buy, the price goes up, and if many people sell, the price goes down. Overvalued and undervalued are terms used to describe these situations.

The NAV of mutual funds doesn't change based on demand. Thus, it can't be overvalued or undervalued. This is why, unlike stocks, investors don't typically use NAV as a factor when deciding to buy or sell mutual fund units.

12. What is the NAV of SIP?

The NAV of the SIP is the same as the NAV of a mutual fund. Mutual funds can be invested through SIPs or lump sums.

SIP: SIP is a Systematic Investment Plan. Investors can invest a fixed amount of money every month in a mutual fund of their choice. Every month, the amount is automatically deducted from their account.

Lump Sum: Investors simply invest a large sum of money in a mutual fund at once.

The characteristics of mutual funds remain the same regardless of the method you choose. No matter whether you invest in a mutual fund via SIP or lump sum, the NAV remains the same.

13. Does a Mutual Fund's NAV Drop like Stocks do?

The NAV of a mutual fund can decrease, similar to how stock prices fluctuate. NAV goes up and down, even for well-performing mutual funds.

Conclusion

Beginners need to understand the above-mentioned points and the most common questions that arise when investing for the first time. Once you are clear on the above points, investing can be easily done with a well-informed decision. However, if you still need assistance while investing, you can consult an expert financial advisor.