Net Asset Value (NAV)
NAV is one of the key term in the mutual funds terminology. Most people confuse it with the share price, but there is lot of difference in the share price and the net asset value. Net asset value is nothing but the value of each unit of a particular mutual fund.
When a mutual fund starts all the investment put in by the investors will be divided into number of units with the initial price say Rs 10. i.e if the total invested money in an NFO is Rs 10 crore, then one crore units of Rs 10 each will be allocated to the investors, if the fund doesn't charge any entry load. Few funds are not charging any entry load for the investment greater than 5 crore and some of the funds are not charging entry load for any amount of investment in NFO.
When the fund manager starts investing the money in the equity, debt or money market, then the value of the total assets will be increased whenever the profit realizes and decreases if loss occurs. This is the reason why the price of each unit is called as Net Asset Value which is representing the value of the assets for that fund. Other than this there is no specific significance for NAV. We cannot judge the future performance with the NAV.
Some people believe that, though the NAV of a mutual fund is not have that much preference, a fund with small NAV performs better than their counterparts. Example, the DSP Merrill Lynch (Now it is DSP Black Rock) mutual fund has started World Gold Fund when the markets are in bull run. It has reached rs 13 which is 30% gain in less than a month. Of course the fund manager is the main entity in generating the best returns, we should also see the NAV to be less than certain range. And obviously it depends on the markets whether the fund gives profits or losses.
Like it on Facebook, Tweet it or share this article on other bookmarking websites.