Net asset value(NAV) is the value of a fund’s asset less the value of its liabilities such as operating expenses, marketing expenses, management fees, among other permissible expenses and charges per unit. NAV = (Value of Assets-Value of Liabilities)/number of units outstanding.
Let us assume I run a company. I have a factory, land property across the country, 100 Four Wheeler vehicle, 25 heavy pieces of machinery and I have borrowed a loan of Rs. 100/- from a bank. The company has 100 shares outstanding in the market.
The value of a factory is Rs. 1000/-, the value of a land property is Rs. 200/-, the value of 100 four wheeler vehicle is Rs. 100/- and the value of 25 heavy pieces of machinery is Rs. 500/-.
So my company’s total asset is = 1000 + 200 + 100 + 500 = Rs.1800/-
Since I have borrowed Rs. 100/- from the bank this is my liability which is to be repaid whether in the long term or short term.
So the company NAV is = 1800-100/100 = 1700/100 = 17
How to calculate the Fund NAV: The Mutual Fund invests the money in many different sectors and a bunch of companies to minimize the risk and diversify the portfolio.
Let us assume one large cap fund invests the money in 5 companies. So the companies NAV is different. To calculate the fund NAV you have to sum the respective company NAV and just average. Then you get the respective fund NAV. The companies in which the money is invested are Maruti Suzuki (NAV 400), Titan Company (NAV 300), State Bank of India (NAV 500), HPCL (NAV 500), and Interglobe Aviation ( NAV 300).
So, the Fund NAV is = ( 400 + 300 + 500 + 500 + 300 )/ 5 = 400.