Mutual Fund NAV (Net Asset Value)
Mutual Fund NAV (Net Asset Value)
What is the Meaning of the Mutual Fund NAV acronym?
In explaining the definition of the mutual fund NAV, it is important first to distinguish between the NAV of a fund and the NAV of a unit. The NAV of a fund at any point in time is the sum total of the market value of the assets (securities) that comprise its portfolio, net of any liabilities at that time.In other words, the NAV of a fund is the amount that all the unit holders will receive after paying all its liabilities.
The NAV of a unit or NAV per unit on any given day simply means the NAV of the fund divided by the number of outstanding units/shares of the scheme on that day. For example, if the market value of securities of a mutual fund scheme is $120 million, net of all its liabilities on a given day and the mutual fund has 5 million outstanding units/share on that day, the NAV per unit will be $24.
The most common use of the term NAV represents the NAVE per unit/share. This is the price at which all the buying and selling of units with the AMC takes place. Simply put, NAV is the market value of the securities held by the scheme. As the market price of the underlying securities change daily, so also does the NAV of a scheme, although the change is much less than that of a single security.
The market value of investments of the fund is impacted by the individual market prices of the invested securities. Receivables come about in the process of the transacting the units where certain sales proceeds of the scheme are yet to be received. Other accrued income and assets may typically be the various dividends or interest accrued from the fund's investments, but not yet received.
Similarly, accrued expenses may represent various loads issuing expenses or other accrued expenses. The payables and other liabilities may be occasioned in the course of units being transacted, where the scheme has yet to pay the unit holders for their redemptions. They could also be the dividends of the units themselves that are payable to the unit holders.
It is observed that the NAV is impacted every time an investor buys into or exits from the scheme. Clearly, large scale redemptions have an effect on lowering the NAV. Even though all funs maintain some liquidity for meeting the needs of normal redemptions, large-scale redemptions may force a fund manager to sell large volumes of securities in a hurry. This may out a downward pressure on the market value of the securities being redeemed, which in turn may result in a lower NAV.