A mutual fund is a pool of money managed by a professional fund manager.
NAV is a commonly used term for determining the value of a receivable from an investment fund in the mutual fund industry
Saving is one of the important components in financial discipline and planning. Any kind of wealth accumulation, retirement planning or other plans are possible with financial security and consistent savings. Mutual funds are one of those important ways to invest, where investors invest in the stock market in small amounts and in a diversified manner. Here’s everything about mutual funds and their net asset value (NAV):
What are Mutual Funds?
A mutual fund is a pool of money managed by a professional fund manager. A number of investors with a common investment goal come together and invest in shares, bonds, money market instruments and/or other securities.
The income/earnings generated from this collective investment, after deducting applicable fees and charges, are distributed proportionally to investors by calculating the ‘Net Asset Value’ or NAV of a scheme. In other words, the money brought in by a large number of investors forms a mutual fund.
What is NAV?
NAV is a commonly used term for determining the value of a receivable from an investment fund in the mutual fund industry. The NAV is a market value of a unit in an asset management company (AMC) managed schedule of a pooled fund. AMCs are financial intermediaries that invest funds collected from private individuals in a particular scheme. It is calculated per unit based on the market value of the net assets (total assets less liabilities) of the scheme and the total number of units subscribed by the subscribers/investors.
The NAV is used to estimate the return for an investment period. It also represents an individual enrollee’s claim to the total fund invested in a scheme through the number of units held. The NAV is the value at which a share is available to be invested/sold and is calculated daily.
Total Net Asset Value (NAV) is the difference between the market value of all securities held by a particular fund, cash and interest accrued in the fund’s portfolio, and deductions from the account of liabilities. The costs incurred are deducted from the NAV.
How does NAV help track MF performance?
The use of NAV is to track the performance of a mutual fund/scheme. For example, the NAV of a mutual fund was X on January 1, 2022 and Y on January 1, 2023. The annual return, i, generated by the mutual fund can be given as: ( − )/ ∗ 100.
The Net Asset Value (NAV) helps an investor find the total market value of the investments in a particular mutual fund/scheme. Suppose an investor owns total units of a fund (regardless of the investment date) and the NAV is Y. Then the market value of the subscriber’s total holdings is *Y.
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