How mutual fund NAV is set, in plain words

Q: NAV is calculated as:

Assets minus liabilities, divided by units. Net assets (assets minus liabilities) divided by the number of units gives the NAV.

Q: A scheme's NAV is computed:

Once each business day. A single NAV is struck each business day, unlike a live share price.

Q: A fund with a NAV of ₹200 versus one at ₹20 is:

Not necessarily costlier, NAV is only per-unit value. A higher NAV alone says nothing about cost or quality. It is just the per-unit value.

Q: Valuing holdings at today's market price each day is called:

Mark to market. Mark to market is the daily valuation that makes a fresh NAV possible.

Q: A scheme has net assets of ₹800 crore and 40 crore units outstanding. Its NAV per unit is:

₹20. NAV = net assets divided by units = 800 / 40 = ₹20 per unit.

How NAV is set

How the daily price is made

People fear a high NAV and chase a low one, both mistakes. This lesson fixes that by showing exactly what the number is and how it is made.

1
NAV is the value of everything a scheme holds, minus its liabilities, divided by the number of units.
2
Holdings are marked to market each day, so the NAV reflects today's prices.
3
NAV is computed once each business day, not moment to moment like a share price.
4
A higher NAV is not 'expensive' and a lower NAV is not 'cheap'. It is just the per-unit value.

Rupee example

A scheme worth ₹100 crore with 5 crore units has a NAV of ₹20. Put in ₹10,000 and you get 500 units.

Practice

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Real exam format. Answer by voice, tap, or press 1 to 4. No negative marking, so always attempt.

NAV is calculated as:

Net assets (assets minus liabilities) divided by the number of units gives the NAV.

It is not a sum of assets and liabilities, nor a share price.

A scheme's NAV is computed:

A single NAV is struck each business day, unlike a live share price.

It is neither continuous nor monthly.

A fund with a NAV of ₹200 versus one at ₹20 is:

A higher NAV alone says nothing about cost or quality. It is just the per-unit value.

Price per unit is not richness or risk.

Valuing holdings at today's market price each day is called:

Mark to market is the daily valuation that makes a fresh NAV possible.

The others are unrelated ideas.

A scheme has net assets of ₹800 crore and 40 crore units outstanding. Its NAV per unit is:

NAV = net assets divided by units = 800 / 40 = ₹20 per unit.

₹40, ₹2 and ₹800 do not follow from dividing net assets by the number of units.

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NISM V-A syllabus

1 The investment landscape

2 What a mutual fund really is

3 How a fund is built

4 Who watches over it

5 The offer document, decoded

6 Getting funds to investors

7 Selling the right way

9 NAV, loads and the daily price

10 Types of schemes, and picking one

11 Return, risk and performance

12 How gains are taxed

13 Serving the investor

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How NAV is set

Practice

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NISM V-A syllabus

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