{"id":8778,"date":"2016-03-14T12:00:22","date_gmt":"2016-03-14T06:30:22","guid":{"rendered":"https:\/\/blog.fundsindia.com\/blog\/?p=8778"},"modified":"2020-01-02T11:09:07","modified_gmt":"2020-01-02T05:39:07","slug":"what-is-nav","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-research\/mutual-funds\/what-is-nav\/8778","title":{"rendered":"FundsIndia explains: What is NAV?"},"content":{"rendered":"<p>Ever wondered what all that jargon in fund factsheets or application forms or articles on investments mean? To make it easier to understand the world of investing, we are starting a weekly column explaining basic concept and terms.<\/p>\n<p>Let\u2019s start off with the one of the most common terms in <a href=\"https:\/\/play.google.com\/store\/apps\/details?id=com.fundsindia&amp;hl=en_IN\" target=\"_blank\" rel=\"noopener\">mutual funds<\/a> \u2013 the NAV or the Net Asset Value. For many, the first question that pops into your mind is what the NAV of the fund is. But unless you know what exactly the NAV is meant for, you may wind up basing your decisions entirely on the NAV number \u2013 a mistake. Here\u2019s what you should know about NAV.<\/p>\n<p><strong>What is it? <\/strong>When you invest in a fund, you buy what are called units in the scheme. If you invested Rs 10,000 in a scheme, you will receive units worth Rs 10,000. Now, how does the fund figure out how many units to allot to you?<\/p>\n<p>That is determined by the Net Asset Value or the NAV of the fund. NAV is the per-unit value or per-unit price of a particular mutual fund scheme. Continuing the example above, if the NAV of your scheme is Rs 20, you will receive 500 units (i.e., 10,000\/20) of the scheme. If the NAV was Rs 50, you would receive 200 units.<\/p>\n<p><strong>How is is calculated?<\/strong> The NAV is arrived at by dividing the total market value of the portfolio by the number of units. The NAV is after factoring in the expense ratio \u2013 that is, all fund-related expenses are netted out and the resultant value is taken to derive the NAV.<\/p>\n<p><strong>Why is it useful? <\/strong>The NAV reflects the value of the securities in the portfolio. It is influenced by the market price of the securities in the portfolio and how much of the security the scheme holds. <em>The change in NAV over a period will tell you what the fund\u2019s gain or loss is.<\/em><\/p>\n<p>So if the NAV of a fund has moved from Rs 10 to Rs 15 in a year, it has gained 50% for the year. The NAV is also the figure used to arrive at the number of units allotted to you. Unit allocation is a tool used to make it easier for the AMC to account for investments.<\/p>\n<p>The inevitable conclusion most people draw is this &#8211; a higher NAV means the fund is more expensive than a fund with lower NAV, and a lower NAV is good because you get more units. Wrong.<\/p>\n<div class=\"blog-highlight\" style=\"clear: both; background: #2baae2; border: none; width: 60%; text-align: center; box-shadow: 0 5px 5px rgba(0, 0, 0, 0.5);\"><a style=\"text-decoration: none;\" href=\"http:\/\/www.fundsindia.com\/content\/jsp\/registration\/login.jsp?ref=blog-button\" target=\"_blank\" rel=\"noopener\"> <span style=\"color: #fff; font-weight: bold;\">Open<\/span> <span style=\"color: #fff; font-weight: bold; text-decoration: none;\"> a FREE Account Now! <\/span><\/a><\/div>\n<p>In a mutual fund, what matters is the <em>value<\/em> of your investment and <em>not<\/em> the number of units you have.<\/p>\n<p>Here is an example. Look at the table below. You have three funds, all with different NAVs. Let\u2019s say you put Rs 10,000 in each, three years ago. You have the highest number of units in UTI Equity and the least in Franklin India Prima Plus. If you used the logic that lower NAVs are better because its cheaper, UTI Equity should have been your best bet. But look at the value of the holding at the end of the three years and the absolute gain you made on each of the funds. <a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2016\/03\/nav-basics.png\"><img loading=\"lazy\" class=\"alignleft size-full wp-image-8783\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2016\/03\/nav-basics.png\" alt=\"nav basics\" width=\"691\" height=\"133\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2016\/03\/nav-basics.png 691w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2016\/03\/nav-basics-300x57.png 300w\" sizes=\"(max-width: 691px) 100vw, 691px\" \/><\/a><br \/>\nYou made the most money on Franklin India Prima Plus, which had the highest NAV. UTI Equity had a lower NAV than Franklin India Prima Plus, but your gains were smaller. Before you conclude that a higher NAV is better, look at DSP BR Top 100. It has a higher NAV than UTI Equity, but it left you with less money than UTI Equity.<\/p>\n<p>As you can now understand, there is no connection at all between the absolute NAV number and your returns.<\/p>\n<p><strong>Remember this &#8211; in a mutual fund, what you are buying is the performance. Therefore, it is the extent or percentage of increase or decrease in the NAV that is important. The absolute NAV is simply a number and completely irrelevant when it comes to deciding which fund to invest in. It is simply an accounting tool used to account for investors\u2019 investments in a scheme.<\/strong><\/p>\n<p>Do let us know if you need any term explained! We\u2019ll add it to our list!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ever wondered what all that jargon in fund factsheets or application forms or articles on investments mean? To make it easier to understand the world of investing, we are starting a weekly column explaining basic concept and terms. Let\u2019s start off with the one of the most common terms in mutual funds \u2013 the NAV [&hellip;]<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[6,376],"tags":[377,254],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v17.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is NAV?<\/title>\n<meta name=\"description\" content=\"NAV is the per-unit value of a particular mutual fund scheme\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fundsindia.com\/blog\/mf-research\/mutual-funds\/what-is-nav\/8778\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is NAV?\" \/>\n<meta property=\"og:description\" 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