How NAV is calculated in a mutual fund?

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NAV stands for Net asset value. When you buy from a fund, it allocates units to you. These allotted units hold a value and it’s called NAV or net asset value.

We are going to see in this article how NAV is calculated & why the value of NAV fluctuates daily.

All right! let’s get started.

NAV is calculated on phone display
Photo by Austin Distel on Unsplash

Let us assume you are a stock market investor and made great returns due to your skill of stock picking. You are buying a house, going on nice vacations, etc. Your success gets noticed in your friends & colleague circle. Few friends ask you a reason behind your success. since you are a good-natured fellow, you introduce your vehicle of success stock market investment to them.

Now they would like to get benefits from the market, instead of choosing to invest directly in markets. Your friends Raj, Rohan, Kunal request you to act as their fund manager & generate returns on their investment. So you ask them to send money to an account, where the pool of funds is collected. Here the ownership of the fund belongs to your friend mutually.

Read more about: Why mutual fund is great for new investors?

Once you receive the fund, you are investing your friend’s money to purchase stocks from the market. As a responsible fund manager, you buy shares of HDFC Bank, Reliance etc., but your friends won’t have ownership of stocks bought by you. Instead, they will hold ownership of units that are distributed by you as a fund manager.

Raj invested 50000 rupees, Rohan invested 35000 rupees, Kunal invested 75000 rupees. The total fund value is 160000 rupees. As a fund manager, you are generating returns from their investment and its profits must be equally distributed to investors in line with their invested amount. Now you are issuing units against the investment made by each investor.

Let’s consider the unit value is 10 rupees.

The total units held by the fund are 16000. among that Raj holds 5000 units, Rohan holds 3500 units & Kunal holds 7500 units. The value of units goes up and down because of price movements of stock investment & expenses of the fund house.

You as a fund manager invested these funds in to 4 stocks. In the below table you can see the diversification & shares bought.

Since the money is invested in stocks, the value of the fund depends on the performance of the market. So the total value goes up and down. Stock A can gain by value in Day 2 and Stock D can lose in Day 2. Let’s look at the below table how the price movements affect the overall value of the fund.

As you can see the day 2 price of stocks has changed. hence the overall fund value changed from 160000 to 160680. A difference of 680 rupees. The fund has moved up to 0.425 % on a single day. The profit of 680 rupees has to be distributed equally among the investors. In this case 0.425 % increase. So the unit value of Day 2 would become 10.0425.

The formulae to calculate NAV is (asset-expenses)/ No of outstanding units.


In our case, the NAV is (160000-0)/16000. Hence the Net asset value is 10.

As a fund manager, I am taking my salary of 1000 rupees from the fund which is an expense. Now the NAV becomes(160000-1000)/16000. The NAV is 9.93.

Now along with my salary of 1000 rupees, I spent around 2000 rupees on advertising the fund. what is the NAV of the fund now? Please comment! Thank you for reading.

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