Net asset value on a particular date reflects the realisable value of a mutual fund’s portfolio in per share or per unit terms. It is the worth of an investment with an open-end mutual fund quoted in terms of its net asset value. That is also the amount an investor can expect if he or she were to sell his or her units back to the issuer.
Daily closing prices of all securities held by the fund are used as a starting point. Subtract from this amount liabilities (including expenses and commissions). And divide the result by the number of outstanding shares and you get the NAV. If the realisable worth of the portfolio is Rs 12 million, divided it by shares outstanding, let’s say one million units, then the NAV is Rs 12 (12mn/1mn). If your fund’s NAV a year ago was Rs 10.5 and is currently Rs 12, then your pre-tax return is 14.28 per cent ((12-10.5)/(10.5)*100). An NAV signifies nothing more than the current worth of a portfolio.
The returns from a fund, based on NAV, makes better sense when compared to a benchmark index. First, it tells you the extent to which, the securities that comprise the fund’s portfolio have outperformed or under performed the index. Two, the use of certain statistical measures can also tell you whether a fund was able to derive above-average risk-adjusted returns. Having said this, a fund’s historical NAV performance is not the best indicator of its future performance. For equity funds, this NAV changes almost everyday with fluctuations in stock prices. The NAV of a fixed-income fund is driven more by changes in rate of interest. On its own, a rising NAV only means that assets, which form a part of the fund’s portfolio, are rising and vice-versa.