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How is Mutual Fund NAV Calculated?

How is Mutual Fund NAV Calculated?

NAV or Net Asset Value is an integral part of mutual funds. A Mutual fund is a professionally managed investment fund. It pools money from numerous investors, retail or institutional, to purchase securities. For any investor, the per-share-value or net asset value of a mutual fund is exceedingly important. Therefore, the correct calculation of mutual funds NAV is essential.

Information on Mutual Funds

Aside from the definition, it is important to know about other aspects of mutual funds as well. They are of various types, including — sector-specific funds, guilt funds, debt funds, index funds, equity funds, money market funds, diversified funds, tax-saving funds, close-ended funds, open-ended funds, large, mid or low cap funds,. There are certain key terms that have to be kept in mind — (a) average annual total return, (b) market capitalization, (c) NAV or Net Asset Value, (d) share classes, (e) turnover.

The advantages of investing in mutual funds includes —

(a) Increased diversification,

(b) Daily liquidity

(c) Professional investment management

(d) Ability to participate in investments available only to larger investors

(e) Service and convenience

(f) Government oversight

(g) Transparency and ease of comparison.

Finally, their disadvantages such as —

(a) fees

(b) Less control regarding the timing of recognition of gains

(c) Less predictable income

(d) No opportunity to customize — and the fact that the laws governing mutual funds differ from country to country.

Information on Mutual Funds NAV and Calculation of Mutual Funds NAV

Net Asset Value is calculated only once in a day and on a per-share basis. The calculation is based upon the closing market prices of securities in a mutual fund’s portfolio. All buy and sell orders are processed according to the NAV of the trade date. But to know the trade price, investors have to wait for the following day.

The NAV is calculated according to a specific formula, i.e., assets minus liabilities divided by a number of outstanding shares.

Each aspect of the formula is described in details below:

  1. Assets consist of (i) the total market value of the fund’s investments, (ii) cash and its equivalents, (iii) receivables, and (iv) Accrued income.
  2. Liabilities include all short- and long-term liabilities, and accrued expenses such as staff salaries, utilities, and operational expenses.
  3. Outstanding shares are recorded on local stock exchange websites and their numbers fluctuate on a daily basis

The NAV formula is explained below through an example:-

((1) plus (2) plus (3) plus (4)) minus ((5) plus (6) plus (7)) divided by (8)


((1) + (2) + (3) + (4)) – ((5) + (6) + (7)) / (8)


Assets are represented by ‘x’.

Liabilities are represented by ‘y’.

Outstanding shares are represented by ‘z’

A mutual fund has the following—

(1) ‘x’ million of investments based on the day’s closing prices for individual assets,

(2) ‘x’ million in cash and equivalents,

(3) ‘x’ million in total receivables,

(4) ‘x’ thousand in accrued income for the day,

(5) ‘y’ million in short-term liabilities,

(6) ‘y’ million in long-term liabilities,

(7) ‘y’ million in accrued expenses for the day, and

(8) ‘z’ outstanding shares

Though the process seems slightly complicated, if you invest in trusted mutual funds, you don’t have to worry about these calculations as you earn good returns.

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