Why should you pay sufficient attention to the NAV of your mutual funds?

The NAV or net asset value of a mutual fund is the overall value of a single allotment of the fund. The most recent NAV of mutual funds is dependent on the market and the current status it holds. The cost is skewed on the stock statuses in market and is prone to rising or falling according to the same. NAVs are a very major component when it comes to deciding the future of your capital or the interest it might carry with it, but despite its importance, it often goes ignored or is overlooked. Even when this factor is brought into consideration, it often brings up the confusion whether the mutual funds with a high net asset value should be purchased or the one with the lower value must be bought.

Here are some of the reasons why enough attention must be given to the Net Asset Value of your mutual fund –

The net asset value mirrors the fund’s inherent value. The highs or lows of the NAV do not really play a major role while deciding the return amount of the investment as they carry a similar portfolio.

The Net Asset Value helps you get an idea of the performance of your fund on a daily basis. One must keep an eye on the status of the NAV in order to stay updated with the condition of their capital and the progress it is making.

These are some of the reasons why one must not overlook the Net asset value of a mutual fund investment. However, it cannot be the deciding factor of your investment as it cannot give a verdict on its overall performance through years or the cumulative interest that can be yielded.

Calculation of the Net Asset Value –

The net asset value of a mutual fund is usually calculated on a daily basis. Depending upon the closing share prices of the previous day of the market, the fund houses deduct all the outstanding liabilities and expenses in order to calculate the net asset value.

The formula for this calculation is –

Net asset value =

[Assets – (liabilities + expenses)} divided by the number of outstanding units.

There are many myths and conceptions regarding the Net asset value, which often tends to misguide the investors and cause a setback to their investment plans. It is always advisable to have thorough and proper information about each and every term related to your investment and even consider experts if any confusion creeps in. It is entirely possible that a single entity might not affect your investment, but it is an intelligent option to be aware of each of them just to ensure that you are not leaving any loopholes from your end and are fully prepared when it comes to the fundamentals of the money market and investments.