If we talk about mutual funds, then it is very important to understand the concept of NAV. Because people who invest in mutual funds remain in dilemma regarding NAV (Net Asset Value).
So let’s go through this article today, what is NAV, how is NAV calculated and should we take a scheme with low NAV? Will try to answer all these questions.
See, before understanding NAV, it is necessary to understand UNIT, then first we understand the unit, as there are shares of different companies in the stock market, in the same way, there are units in mutual funds, according to that unit. BUY and SELL are done.
Like we say in the stock market that I have 100 shares of this company, similarly related to the mutual fund we can say that I have so many units of this mutual fund.
A mutual fund scheme is very big, this scheme can be in crores, it is not possible to buy such a large amount to a small investor, so the mutual fund scheme is divided into small parts.
Suppose the total amount of a mutual fund scheme is 10000 crores and if it is divided into 1000 crores, then the cost of losing parts will be ₹ 10, this one part is called a unit, which means there is a unit of ₹ 10 i.e. unit Every mutual fund has a small share.
What is NAV (Net Asset Value)
See, when you invest your money in a company’s stock or share, then you get some shares from that company in exchange for that money and you become a shareholder of that company.
Similarly, when you invest your money in a mutual fund, you get some units in return for your money from that mutual fund and you become the unit holder of that fund.
See how many shares you will get by investing how much paise in the case of a company’s stock, it depends on how much is the price of 1 share of that company, but in the case of mutual funds, how many units will be allocated by investing how much paise?
See, it is very simple, it is known through NAV, that is, from Net Asset Value. NAV is the price of one unit of any mutual fund.
Just as in our first example, shares are allocated to you for your money based on the price of a share, similarly in mutual funds units are allocated for your investment based on the value of NAV.
Let us understand through an example, suppose you have invested a total of 1000 rupees and the price of NAV was ₹ 10 then you will get the cool number of units 1000/10 = 100 i.e. by investing 1000, you have allocated a total of 100 units in that fund. . So you got an idea of what NAV is
How NAV is Calculated
See a very simple method is used to calculate NAV which is
NAV= (Total Assets — Liabilities)/Total Number of Units
The assets of any fund are the stocks, bonds, securities, deposits, etc. with that fund and the liability of any fund can be money payable interest payable, etc of that fund.
Any fund has different expenses such as fund management expenses, office expenses, branding expenses, etc. The total number of units of any fund is the cool units that are allocated in that fund to its investor.
So let’s understand this with an example, suppose an ABC fund has total assets of 50 crores and liabilities is 27000 and total expenses are 400 and the total number of units is 2 crores then the NAV of that fund will be 500000000–27400/20000000 = Rs.24.99
Should we go for a scheme with low NAV?
We often feel that low nav schemes are cheap, but it is not so, so let us understand this also with an example,
Suppose there are two mutual fund schemes, scheme X and scheme Y, scheme X has a NAV of ₹10 and scheme Y has a NAV of ₹100 and has invested 10000 in both the schemes at the beginning of their year.
According to NAV, you will get 1000 units in scheme X and 100 units in scheme Y. After 1 year, after performing well in both the mutual fund schemes, the NAV of both the schemes increases by 20%.
Due to the increase in NAV, the value of 1000 units of scheme X becomes (1000*12) = ₹12000, and the value of 100 units of scheme Y also becomes (100*120) = ₹12000.
So you must have understood that if the NAV is more or less, there is no difference in its mutual fund scheme, everything depends on the growth of NAV.
NAV shows the performance of the mutual fund scheme means if the NAV of a mutual fund scheme is Rs 28 now and 1 year ago the NAV of that fund was ₹ 20, then that mutual fund scheme has shown a growth of 40% that means a mutual fund scheme is performing well. We can understand whether it is doing or not by looking at its NAV value.
Hope you have understood what is NAV (Net Asset Value). Keep visiting our blog to get such investment and share market-related articles.
