What is the mutual fund NAV and what does it signify? This article explores the concept of NAVs.
A new investor dipping their toes in the complex mutual fund universe may be more than a little confused about the various technical terms being issued in relation to their investment. Of them all, the term ‘NAV’ (Net Asset Value) keeps cropping up frequently, and it is an important jargon to know more about.
The mutual fund NAV is the price at which you buy or sell units of the scheme. It is important to know the latest NAV of the mutual fund so that you are always aware of how the fund is faring and if any corrective action is needed to boost its performance.
There are important reasons why knowing the mutual fund NAV benefits you. Consider the following:
* It lets you know the composite value of all the securities you own.
Most investors leave the daily monitoring of their MF portfolio to their fund managers. This is fine, but it is also important to know the value of all the securities you own and how they fare in the current market conditions. The latest NAVs of mutual funds reveal the total value of the securities you hold, including cash. The NAV of the mutual fund is calculated per unit after deducting the debt from the overall asset value, and then dividing the remainder by the number of units you hold. The number you are left with is the mutual fund NAV. The higher the NAV, the better your securities are performing.
* It lets you decide when to buy or redeem the fund scheme.
Do note that the NAV of mutual funds rises in proportion to a price rise in the securities. A drop in prices also causes a corresponding drop in mutual fund NAV. Thus, keeping a track of the NAVs regularly helps you find the right point in the scheme’s working cycle in terms of when to buy or sell the scheme. You can trade in the securities based on a propitious latest NAV of the mutual fund.
* It helps you map the scheme progress and effect a course correction, if necessary.
Another reason to track the mutual fund NAV, and also the NAV history over a certain period of time, is to get a holistic view of the fund’s overall performance vis-à-vis market forces. Consistently high mutual fund NAVs show that the fund is doing well, while dropping NAVs show the opposite. However, the NAV alone does not determine the fund’s performance; do discuss your concerns with the fund manager to keep abreast of market trends.