Net Asset Value: Which day’s NAV is utilized to purchase or redeem Mutual Funds?
Net Asset Value commonly called NAV is a single unit cost of a mutual fund. This is the price at which mutual fund units can be bought and redeemed.
Various assets on behalf of the investors are held by mutual funds based on their well-stated objective and classification of equity/debt. These could include stocks, bonds, money market products, cash, and derivatives.
Operational expenses and costs are one of its liabilities. These costs involve taxes, management fees and administrative charges etc.
To get the NAV, you need to subtract the liabilities from the total value of assets and then divide it by the total number of mutual fund units.
Let’s understand it with an example:
Suppose your mutual fund investment is Rs.10,000, so the units that will assigned to you will be 102.5 units at an NAV of Rs.97.5. And, if you want to redeem 100 units from the units you hold then you will get back Rs.9,750 amount.
When is the NAV declared?
Each mutual fund’s NAV is the end of the day because prices of the stocks are only available when the market closes at 3.30 pm.
Despite stock prices, which can change by the minute, the NAV changes regularly and appears on mutual fund and Amfi websites before 11 p.m. every day.
What does NAV mean for Investors?
Simply, NAV shows the price at which the units of a mutual fund is bought and redeemed. It does not accurately reflect the mutual fund’s performance or returns. However, you can use it to track down the fund’s growth or prior performance.
For example: If a fund’s NAV was Rs.10 when it was first launched and reached to Rs.100 in ten years later, it indicates an increase in the fund’s capital and therefore an increase in the number of investors who subscribed to the fund. However, it will not show the fund’s returns during the last ten years.
Which day’s NAV is utilized to purchase or redeem Mutual Funds?
The Mutual fund unit prices for purchasing and selling will depend on the time at which the amount is received not at the time the request is placed which is known as NAV based on realisation. Market regulator SEBI has fixed the cut-off time which is 1:30 pm for liquid and overnight funds, and for equity funds and other debt, the cut-off time is 3.30 pm. If the amount is received after this cut-off time, the next day NAV will be applicable and if the amount is received before the cut-off time, the same day NAV will be applicable.
