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Key Features

Key features of a mutual fund 1. Pooling Of Resources:   By pooling their investments, individuals are able to gain access to a diverse array of assets through mutual funds. This collective approach enables participation in investment opportunities that may otherwise be unattainable for those investing independently. 2 . Professional Management:   Mutual funds are overseen by professional fund managers with the necessary expertise to manage investors' capital effectively. These managers are equipped with the resources required to diligently monitor their investments and to rebalance their portfolios per the specific objectives of the fund. 3. Risk Diversification:  Mutual funds provide investors with the opportunity to diversify their portfolios across a variety of assets, including equity, fixed income, money market instruments, and commodities. This diversification serves to mitigate the downside risks typically associated with concentrating investments in a singl...
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Net Asset Value (NAV)

Net Asset Value 

The Net Asset Value or NAV is the price at which investors buy (subscribe) or sell (redeem) units of a mutual fund. It is the market value of all the assets that are held in a fund's portfolio less its liabilities. The NAV per unit is NAV divided by the total no. of units outstanding.  

Formula = (Total Assets - Total Liabilities) / Total no. of units outstanding 

Key elements

  • Total Assets: Includes all investments made by the fund (such as stocks, bonds, money market instruments, cash) and any income generated (like dividends or interest). 
  • Total Liabilities: Covers all expenses incurred by the fund like management fees, administrative costs, and any other payable amounts like interest payable etc.
  • Units Outstanding: The total no. of mutual fund units issued to investors.

Example

Total Assets: ₹1,00,00,000

Total Liabities: ₹5,00,000

Units Outstanding: 5,00,000

NAV = (1,00,00,000 - 5,00,000)/5,00,000 

         = 95,00,000/5,00,000  

        = 19 

A fund with a higher NAV does not necessarily connote a better performing fund. However, changes in NAV over time shows how the fund's investments are growing.

Example

NAV at time t = 120

NAV at time (t-1) = 100

Return = {NAV (t) - NAV (t-1)} / NAV (t-1)

             = (120-100)/100

             = 20% 


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Key Features

Key features of a mutual fund 1. Pooling Of Resources:   By pooling their investments, individuals are able to gain access to a diverse array of assets through mutual funds. This collective approach enables participation in investment opportunities that may otherwise be unattainable for those investing independently. 2 . Professional Management:   Mutual funds are overseen by professional fund managers with the necessary expertise to manage investors' capital effectively. These managers are equipped with the resources required to diligently monitor their investments and to rebalance their portfolios per the specific objectives of the fund. 3. Risk Diversification:  Mutual funds provide investors with the opportunity to diversify their portfolios across a variety of assets, including equity, fixed income, money market instruments, and commodities. This diversification serves to mitigate the downside risks typically associated with concentrating investments in a singl...
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