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When we talk about investing in mutual funds, the term NAV gets mentioned frequently

The Net Asset Value or NAV of a Mutual Fund is the price of a single unit of the mutual fund scheme.

When you buy or sell mutual fund units, you have to do so at the applicable NAV. This is based on the cut-off timings and the category of the fund. The applicable NAV can be of the previous day, same day, or next day based on these timings.

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Hence, before you buy or sell mutual funds, it is important to understand how this calculation is done to make informed decisions.

In this blog, we will talk about Net Asset Value (NAV) and what is the cut-off timing for different category of funds.

If you are investing on Groww, following cut-off times (cut-off time is the time before which the fund house should receive the money for using the same-day NAV) are applicable for different categories of funds.

For Liquid Funds

If your order is placed on Groww by 12.55 p.m., you will get the previous day’s NAV for an order amount less than Rs 2 lakh. In case the order is placed after 12.55 p.m., you will get same-day NAV.

Liquid funds are funds that invest in very short-term (up to 91 days) debt instruments such as commercial paper, treasury bills

For Debt Funds and Conservative Hybird Funds

Amount less than Rs 2 lakh

If your order is placed on Groww by 3.00 p.m., you will get today’s NAV.  In case the order is placed after  3.00 p.m., you will get next day’s NAV.

Amount more than Rs 2 lakh

If your order is placed on Groww by 2.25 p.m., you will get today’s NAV.  In case the order is placed after  2:25 p.m., you will get next day’s NAV.

For Equity Funds

If your order is placed on Groww by 3.00 p.m., you will get today’s NAV.  In case the order is placed after  3.00 p.m., you will get next day’s NAV.

Here’s a quick snapshot of cut-off timings and NAV applicability:

Purchase
Scheme Type Groww BSE Cut-off
Liquid 12:55 PM
Debt/Hybrid Conservative —- Non Liquid > 2L* 2:25 PM
Others — Non Liquid > 2L* 2:25 PM
Debt/Hybrid Conservative —– Non Liquid < 2L 3:00 PM
Others. — Non Liquid < 2L 3:00 PM
*greater than 2 lakh is subject to availability of funds in Groww Balance
Redemption
Scheme type Groww BSE Cut-Off
Liquid 3:00 PM
Non Liquid – Debt / Hybrid conservative 3:00 PM
Non Liquid – Others 3:00 PM

.Let’s read more about NAV and it’s calculation in the blog ahead.

How is NAV calculated?

In the simplest terms, NAV is calculated by taking the total market value of all the shares in the fund and dividing it by the number of outstanding units. It is calculated every day at the end of trading hours. The formula for the calculation of NAV is:

NAV=(Total Asset Value-Total value of liabilities)/Total number of outstanding units

Here is an example:

Let’s say that the total assets of a mutual fund scheme are Rs 500 crore and the total liabilities are Rs 100 crore. Also, the total number of outstanding units is 8 crore. Therefore, the NAV will be:

NAV=(500,00,00,000-100,00,00,000)/8,00,00,000=  Rs 50

This is calculated every day at the end of the trading hours to give investors an idea about the fund’s market value per unit.

When is NAV Computed?

Every day, at the end of the market hours, all fund houses calculate the NAV of all their schemes. They consider the value of each instrument that the scheme holds at the end of the day for calculating the market value of the scheme. 

When Can You Invest in a Fund?

It is important to remember that you can invest in a mutual fund at any time. However, you must understand the NAV applicability rules to know the NAV that will be applied for the transaction.

As explained above, NAV applicability depends upon the type of the fund and the time of the transaction. Hence, ensure that you take these factors into consideration before investing.

Does NAV matter?

While the NAV determines the number of units you can buy for a specific amount, it does not imply the return generating capability of the fund.

NAV is simply an indicator of the fund’s performance on a given day. Even if you look at the NAV trend over the previous few months or years, it can only tell you how the fund has performed historically – again not an assurance of the future performance of the fund. Hence, the NAV has no impact on the returns of the fund nor does it indicate its performance.

For successful investing, you must look at the fundamental attributes of the fund like the Assets Under Management (AUM), the absolute and relative performance of the fund in the past, various performance indicators like the alpha, beta, Sharpe ratios, etc.

Happy Investing!

Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.

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