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Home»Business»What Is NAV? How is it different from the share price?
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What Is NAV? How is it different from the share price?

David CurryBy David CurryFebruary 1, 2020No Comments3 Mins Read
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Mutual funds are market-linked investment vehicles that are increasingly becoming the preferred investment choice for many investors. Be it a new investor or a seasoned one, terms such as the Net Asset Value (NAV) and share prices may sound familiar. However, sometimes they can appear confusing for new investors. To help you know the difference between the two, we list out their definitions and applications.

This article helps you understand the NAV of mutual funds and how it differs from the share price. 

What is NAV?

Also called as the book asset value or net value, NAV is the per-unit market value of a fund. It denotes the price at which you can buy and sell units to a mutual fund company. 

NAV calculation involves dividing the total value of the assets in an investment portfolio by the number of outstanding units after subtracting expenses. For instance, if a mutual fund has a total value of Rs.100 million and 10 million outstanding shares, its NAV is Rs.10 per share. 

Typically, investors use the NAV to track the performance of their mutual fund investments. The rise or fall of NAVs can help investors calculate the percentage increase or decrease in their investments. 

The NAV of a mutual fund is calculated at the end of each market day after factoring the closing market prices of underlying bonds, stocks and securities. This is because it could be challenging to track the price of all the underlying holding when markets are still in session.  

What is the difference between NAV and share price?

Share prices are quoted on the stock exchange, whereas NAVs are calculated at the end of every market day. Typically, share prices depend on analysts’ views of a company and the stock’s performance in the future. Besides, share prices also rely on market forces after considering supply and demand. On the other hand, the NAV of a mutual fund is not dependent on the demand of the mutual fund in the market. 

Secondly, market price and net value are two different concepts concerning a stock. And concerning mutual funds, there is no concept of the fund’s market value. An investor can buy mutual fund units at the book value.

Thus, you can compare the NAV to the face value of a share instead of the share’s market value. 

Conclusion

If you are looking to invest in mutual funds, you can start by understanding basic concepts such as what is mutual fund and its various types. This can help you enjoy enhanced mutual fund benefits and generate more wealth in the long run. 

Whether you decide to invest in equity funds or debt funds, you can determine the total worth of your investment through its NAV. NAV helps interpret the value of your funds as investments transition from one market phase to the other. On the other hand, share prices rely on market forces and the demand and supply of stocks. 

 

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David Curry

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