Here is another important financial concept that will surely improve and enrich your understanding regarding financial knowledge and matters. This is what we call NAV or Net Asset Value.
Definition of NAV: Net Asset Value (NAV) is simply defined as the actual value of one unit of a given scheme on any given business day. The NAV reflects clearly the liquidation value of the fund’s investments on that particular day after accounting for all expenses. Moreover, it is calculated by deducting all liabilities (except unit capital) of the fund from the realizable value of all assets and dividing it by number of units outstanding. In short NAV is the actual investment that an investor has after deducting all liabilities and credits or expenses.
The mutual fund company adds up all the stocks they own in the mutual fund, subtracts their expenses, and divides by the number of shares outstanding. This is the NAV. In other simple terms this is what we call profit sharing. Many sites on the web show expense ratios for mutual funds. The lower the expenses, the more of your money you get to keep! Meaning to say, a lot of money will be received by you once you have lesser expenditures.
Furthermore, asset management (mutual Fund) companies allocate units against the money invested by us. NAV is the value of 1 unit allocated. The NAV increases when the shares (stocks) held by the Asset Management Company appreciate and vice-versa.
NAV is calculated on daily basis and can be described as the (total value of the assets under the scheme minus the expenses) divided by the total number of units allocated under the scheme. This makes NAV therefore a dynamic reality in the financial investing area.
NAV= all value of asset or stocks of a portfolio
For example, if a fund has assets of 50 Carore Rs and liabilities of Carore Rs, it would have a NAV of 40 Carore Rs.This number is important to investors, because it is from NAV that the price per unit of a fund is calculated.
By dividing the NAV of a fund by the number of outstanding units, you are left with the price per unit. In our example, if the fund had 4 Carore shares outstanding, the price-per-share value would be 40 Carore divided by 4 Carore which equals 10 Rs.
This pricing system for the trading of shares in a mutual fund differs significantly from that of common stock issued by a company listed on a stock exchange. In this instance, a company issues a finite number of shares through an initial public offering (IPO), and possibly subsequent additional offerings, which then trade in the secondary market.
In this market, stock prices are set by market forces of supply and demand. The pricing system for stocks is based solely on market sentiment.
Suggested reading
- How to save petrol
- Advantage of financial planing
- Stupid statement in stock market
- Why we should buy gold
Do not forgot to read
- Trading Rules
- Top 5 Stock for 2-3 years
- Time to make average in Stock
- How much insurance do you need
- Advantage of SIP
- What is ULIP
- Read before buy ULIP
- Mutual fund vs ULIP
- Hidden factor of ULIP
In conclusion, it is important to be reminded by experts that the NAV is something that each and every investor looks forward to in view of their monetary investments. This is indeed something that makes the business more exciting. Investors always see to it and hope that they will generate more income from what they have invested. Great indeed is this mode on earning from our money without so much risk such as maintaining its flow in the market. Continue investing in order to gain better NAV!
