What is mutual fund NAV (Net Asset Value)?
NAV stands for Net Asset Value.
Simply said, Net Asset Value is the price of one unit of a mutual fund scheme.
To make this more relatable, a company’s ownership is divided into units called stocks. Similarly, a mutual fund is owned by a large number of people and the total ownership is divided into small pieces where each piece is called a mutual fund unit.
The price of this mutual fund unit is termed as NAV.
NAV is a simple and basic concept in the context of mutual funds. But there are plenty of myths around NAV –
- Lower NAV is good – we should buy mutual fund with low NAV
Just like stocks are bought at low prices to be sold at higher prices to make profits in the future, many believe NAV works the exact same way.
It does and it doesn’t!
One reason the NAV could be small is because the fund is new!
Another reason the NAV could be small is because it is the dividend option of the fund.
There could be a gap between the NAVs of two fund schemes because they would have different lives, different return over their lifetimes or because they belong to two different categories all together!
Moral of the story – Don’t treat NAV of a mutual fund as price of a stock. It is far from being similar!
- Expense Ratio will be deducted from the NAV
Other Mutual Fund Questions
What is mutual fund AUM (Assets Under Management)?