Significance of 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 depending on their investment. Here to mention one point, the entry load. If you invest an amount less than that is specified by the fund, your investment may attract the entry load. So the actual NAV would not be the Maximum value but the left over amount after deducting the entry load. Nowadays some of the funds are giving the units at par. However, the entry load may applicable for the normal investments i.e. after 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.
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