What is the Calculation of Value for each Mutual Fund Unit?

What is the Calculation of Value for each Mutual Fund Unit?

Each mutual fund has different schemes. Each scheme has its own plans. The investment amount of investors is known as assets under management. The calculation of units of mutual funds is a normal process. People are adding and dropping the scheme every day. After the closing of market hours, the outstanding share price is calculated based on the closing prices of the equity under the plan and we can divide it by the total number of units given. That helps us calculate the Net Asset Value (NAV) for each unit of a mutual fund.

The Net Asset Value (NAV) of a mutual fund is the price at which units of a mutual fund are bought or sold. It is the market value of the fund after deducting its liabilities. The cost of all units in a mutual fund portfolio is calculated daily, deducting all expenses from it. The result is then divided by the total number of units; the resulting value is NAV. NAV sometimes called net book value or book value. Let us discuss its NAV formula  in a little more detail.

NAV indicates the market value of the units in a portfolio. So, it allows an investor to track the performance of a mutual fund. By determining the percentage increase in NAV mutual funds, an investor can calculate the actual increase in the value of their investment. Therefore, NAV provides accurate information about the performance of mutual funds.

Calculation of Net Asset Value (NAV)

There are generally two types of mutual fund assets – securities and cash. All bonds and stocks of securities are included. As a result, a fund’s net asset value will consist of its market value of shares, cash and bonds. Total assets also include dividends and interest earned and liquid assets.

Besides, liabilities like money owed to creditors, and other expenses accrued are also included. Now the NAV formula is:

Net Asset Value (NAV) = (Asset – Debt) / (Number of units outstanding)

Assets = market value of mutual fund investments + receivables + earned income

Debt = Liabilities + Expenditure (earned)

The market price of shares and debentures is usually the closing price on the stock exchange where the stock is listed.

There are some things to remember                                                    

Mutual funds and other accounting firms themselves calculate the NAV of a mutual fund. Since mutual funds based on the stock markets, usually announced after closing hours of the exchange.

All mutual funds are required to publish their NAV in compliance with SEBI guidelines on every business day.

The NAV is obtained after deducting the fund’s expense ratio. This expense ratio is the sum of all expenses incurred annually by mutual funds, including operating and management fees, distribution and marketing fees, transfer officer fees, custodial fees and audit fees.


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