There are several checks that you complete before you invest your money in any financial tool. Right from past performance and inflation adaptability to liquidity and withdrawal flexibility, there are several aspects to consider. When it comes to mutual funds, one of the primary considerations is the NAV or the Net Asset Value. The NAV is an important factor when investing in a mutual fund and can affect you tremendously. Read on to know more about the NAV and why it is crucial.
What is the NAV?
Mutual funds pool in money from various investors and invest this money in stocks, bonds, etc., to generate returns. Since multiple investors are investing in a mutual fund, each investor is given some units of the fund. The price of one unit is known as the NAV.
The NAV is an indicator of the fund’s performance and represents the value of all the securities held by the fund. This refers to the assets minus the liabilities and expenses of the fund.
Here’s how you can calculate the NAV for a mutual fund:
NAV = Total market value of the securities held by the scheme / Total number of units of the scheme
The NAV changes every day and is announced by the fund house so that investors can decide to buy or sell units accordingly.
How Does the NAV affect Investors?
When you start a SIP or invest in a lump sum, you purchase units as per the prevailing NAV of the mutual fund. So, if the NAV is low, you can buy a higher number of units, and if the NAV is high, you will be able to purchase fewer units for the same amount of money. For instance, if you have Rs. 500 to invest, and the NAV is Rs. 10; you can purchase 50 units. However, if the NAV changes to Rs. 20, you will only be able to buy 25 units.
Apart from buying and selling, you can also use the NAV to track the past performance of mutual funds. For instance, if the NAV changes from Rs. 10 to Rs. 15, the return from the mutual fund equals 50%.
Another important thing to note here as an investor is that since the NAV changes every day, the exact time of the day when you purchase a mutual fund is crucial. If you buy the mutual fund before 3 PM, you will pay the NAV of the same day. However, if you purchase the mutual fund after 3 PM, the next day’s NAV will be considered.
To Sum it Up
Now that you know the meaning of NAV and how it affects you, make sure to pay attention to it when you invest in mutual funds. You can use any mutual fund apps to check the latest NAV of the mutual funds you wish to invest in. This way, you can be up to date all the time and take advantage of the best market opportunities. So, download Tata Capital Moneyfy app and start investing online today.