Mutal Fund NAV meaning and Why it Matters? - The Profit Score

Mutal Fund NAV meaning and Why it Matters?

When we talk about mutual funds, number and acronyms appears like foreign language. One such term is the Net Asset Value (NAV) that often confuse investors and traders. But don’t worry, in this article we will decode the mystery of mutual fund NAV meaning and why it has so much importance in the investment world.

Understanding Mutual Fund NAV meaning

Net asset value of NAV is an essential element when it comes to mutual funds. NAV depicts the per unit value of mutual fund. It is the market price that is offered to buy or sell the units of that particular mutual fund. It is like purchasing or selling the stocks in the stock market. The NAV value of any mutual fund can be calculated by dividing the total value of the mutual funds (Securities + Cash – Liabilities) by number of units outstanding. Please see the formula below for NAV calculation.


mutual fund NAV meaning Formula

NAV acts as a reference point for traders to measure the performance of a mutual fund. It also depicts that how the particular scheme of a mutual funds has grown or decline over a period of time. By tracking the NAV value over a period of time, traders can have idea about overall health of the scheme and making informed decisions regarding buying and selling of the particular units.

But investors or traders should be aware of that NAV alone cannot show the complete picture of the mutual fund. It is one of the many factors that depicts the performance of mutual funds and their particular schemes. Other factors may include fund’s investment objectives, expense ratio and past performance of the mutual fund.

Why NAV is important in Mutual Funds

The NAV of mutual funds play a critical role in determining the value of investor’s holdings. When an investor or trader plans to enter or exit a mutual fund, the transaction is carried out at current NAV. This is similar to buying and selling the shares or forex pair. It means NAV directly impact the amount of money that investors pay at the time of buying and receives at the time of selling for their units.

Example: An investor wants to buy the 1000 units of a mutual funds which has NAV value of $10. The total cost of investment will become $10,000(1000 X 10). Similarly, if the investor wants to sell their units when the NAV is $15, he will receive $15,000 (1000 X 15) which result in financial benefits of the investors. This may happen vice versa if the mutual fund is not performing accordingly.

Further, NAV also depicts the performance of the underlying assets held by the mutual fund. If the NAV of the fund is increasing over a period of time, it means that fund is generating positive returns. On the other hand, if value of NAV is decreasing over a period of time, it means that fund is generating negative returns which signals a lackluster performance or potential risks associated with the fund’s holdings.

How NAV is Calculated and how to read mutual fund NAV meaning

The calculation of NAV and understanding mutual fund NAV meaning is a simple process. Below is a step by step process to calculate the NAV value of a mutual fund.

  1. See the market value of all the securities held by mutual fund.
  2. Determine the value of cash or equivalents the mutual fund has and add it to the value of securities.
  3. Subtract any liabilities or expenses incurred by the mutual fund.
  4. Divide the net value obtained by the total number of outstanding units.

For example, let’s consider, a mutual fund has a total market value of $100. It holds $10 million in cash, $5 million liabilities. If there are 10 million units outstanding then NAV will be calculated as follow:

(100,000,000 + 10,000,000 – 5,000,000) / 10,000,000 = $10.50

It means the NAV per unit is $10.50 of this mutual fund. This rate will apply if someone wants to buy or sell the units of this mutual fund.

Mutual fund nav meaning and calculation

Factors that Influence mutual fund NAV

There are a number of factors that may affect NAV of mutual fund. Some of the key factors are follow:

1. Market Movement

As the market value of the securities held by the mutual fund change, the NAV of mutual fund also changes with it. If the value of the securities increase, the NAV of the mutual fund also increases and it means it is performing better and vice versa.

2. Expenses and Fees

As we can from the NAV formula that we have to subtract the liabilities and expenses from the net value. So, it has a considerable affect on NAV. The greater the expenses, the lower the NAV of the mutual fund.

3. Dividends and Distributions

The mutual fund’s net assets value decreases when it distributes dividends or capital gain to its investors. It means the cash is outflowing that is decreasing the NAV of the mutual fund.

4. Inflows and Outflows

If more investors buy the units of mutual funds, then there will be inflow of cash that will enhance NAV. On the other hand, if there will be heavy redemptions then NAV will decline.

Mutual fund nav meaning factors
Macro shot of financial concept

Benefits of Monitoring mutual fund NAV meaning

Regularly monitor the NAV of mutual fund can have many benefits. Some of the benefits are mentioned below.

1. Assessing Performance

By monitoring the NAV of mutual fund, investors can have an idea about the performance of mutual fund over a specified period of time. If the NAV is consistently growing, it means the fund is performing well. If the NAV is declining, it may raise issue regarding funds investment strategies or other issue that may impact NAV as described in the above section.

2. Timing Investments

Monitoring NAV can help investors to make decisions about entering or exiting mutual fund. If the NAV in increasing, it may be a good time to buy the units of fund and if NAV is declining, the investors can exit the mutual fund. It can be other way round as few investors prefer to enter the mutual fund at a period of correction because they can get discounted prices of a well-established mutual fund.

3. Comparing Different Funds

The NAV of different funds allow investors to compare their performance over a period of time. In this way they can select the best fund that is suitable for their investment goals. They can even switch funds by comparing their performance and make informed decisions.

4. Tracking Cost

By monitoring the NAV, the investors can also track costs associated with their investments. If the NAV of a fund remain stable over a period of time but its expenses continue to rise, it may be an alarming situation and indicate inefficient fund management.

benefits of NAV

Common Misconceptions about NAV

Followings are the few misconception about nav that should be considered when searching for its meaning

1. Higher NAV means better Performance

The NAV alone does not depict the true performance of the mutual fund. A higher NAV does not necessarily mean that the fund is performing well. It is also important to consider other elements of mutual funds such as investment objective, past performance and expense ratio.

2. Lower NAV means cheaper fund

If the value of NAV low does not mean that the fund is cheaper. The NAV value may be low but it can offer better value for money. So always see NAV in conjunctions with other factors.

3. NAV is the only indicator of a fund’s health

Few investors believe that NAV is the only indicator that determine the health of the mutual funds which is a misconception. NAV should not be considered as the sole factor determining the health of the fund but it should used with other factors for clear picture.

Tips for Interpreting NAV

The get most out of the NAV meanings, consider the following tips in mind when evaluating the mutual funds.

1. Track the NAV regularly

A single time NAV value does not depict the true picture of the funds. Monitor the NAV value of the fund on a continuous basis and see whether it is increasing over time or not. On the basis of NAV value over a period of time, you can take your investment decisions.

2. Compare NAV growth rates

Compare the NAV growth rates of different funds to better make the investment decisions. Go for those mutual funds whose growth rate is better over a period of time.

3. Look beyond NAV

NAV is not the only indicator that gives an idea of a fund performance. Do not get mislead by its value alone. Always use NAV in conjunction with other indicators of funds’ performance.

4. Consult a financial advisor

If you are not well-aware of these terms then it is better to consult a financial advisor for investment purposes. Do not take investment decisions on the basis of little information or a couple of factors. Always get information from a reliable source and better to hire a financial advisor which is beneficial in the long run.

tip for understadng of mutual fund nav meaning

Importance of considering Mutual fund NAV meaning when investing in Mutual funds

NAV is important for several reasons when looking for investing in mutual funds. Below are the few factors to consider.

1. Performance Evaluation

The number one factor that someone should consider before investing in any mutual fund is its performance over a period of time. The growing NAV value is an important element that gives you the reason to invest in a particular fund.

2. Price Determination

The NAV determines the price of a unit of a mutual fund. It is directly linked with the financial outcomes as you are buying an inventory or stock. If you are getting it at a reasonable price with compare to its performance then it may be a winning deal.

3. Risk Assessment

The change in the NAV value depicts the possible risks associated with the mutual funds. A declining NAV means a poor performance of the fund which may be due to any reason.

4. Portfolio Management

Continuously monitoring the NAV allows the investors to effectively manage your portfolio in case they are applying the strategies of diversification, rebalancing or reallocation.


The NAV or net asset value is a crucial element that investors should consider and monitor. The understanding the means of NAV value and its utilization in the investment decisions paly a key role in determining the right mutual fund to invest. It acts as an indicator to monitor the performance of a mutual fund, its market price and the risks associated with it. By considering the NAV along with other factors can help investors to make the better investment decisions. So, next time, you see NAV value of a mutual fund, remember that it is not just a number but a window that shows the right investment opportunities.

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