What is NAV of a mutual fund and how is it calculated?

The net asset value (NAV) of a mutual fund indicates the price at which the units of that mutual fund are bought or sold. It represents the fund's market value after subtracting the liabilities. The NAV per unit is derived after dividing the net asset value of the fund by the total number of its outstanding units.

The formula for calculating NAV:

The net asset value (NAV) of a mutual fund indicates the price at which the units of that mutual fund are bought or sold.

NAV is an indicator of the market value of the fund's units. Hence, it helps track the performance of the mutual fund you have invested in. The percentage increase in your fund's NAV over time is the actual increase in the value of your investment. Therefore, an investor can gain accurate information about his investment by studying the NAV movements of a fund over a period of time.

Many investors assume that putting money in mutual funds with a lower NAV may offer them better returns compared to a mutual fund with a higher NAV. However, this is a misconception and often leads investors to invest in under performing mutual funds. Low NAV of a mutual fund may suggest that the fund was either floated recently or the fund has poor performance and return history.

Therefore, low or high, NAV does not impact the return on investment from the mutual fund.


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