Computation of NAV
NAV value i.e. used as a performance indicator for the mutual fund scheme is arrived at by :
= Value of assets- value of liabilities/ Number of Outstanding Shares
NAV for each of the MF scheme is determined each day on the basis of the closing price of the securities which form the part of the fund scheme. Also, all transactions, including buy and sell trading orders are executed at the NAV price on any given trading date.
Returns in a MF scheme are independent of NAV value
NAV of a MF scheme unlike the market price of the share does not determine the return of a MF investor. It is only the quality of the funds in a given fund that determine the rate of return of an investor. So, if an investor wishes to invest a sum equal to Rs. 10,000 in mutual fund schemes and has 2 options both including the same funds. Then, regardless of the NAV value, both the schemes would generate in same time.
NAV and its rationale
In case of open-ended MF scheme, NAV is the price at which MF units are bought and sold. Also, NAV determines value of the fund that would accrue to an investor upon withdrawal of the investment. However, in the closed ended scheme, price of the unit is determined on the basis of market forces and it is either above or below the NAV price.