NAV (Net Asset Value) is the composite prices of all the securities held in the fund along with the liquid cash after deducting the liabilities. It is the price at which you buy or sell one unit of a scheme. The NAV will rise if the prices of the majority of the securities goes up and vice versa.
NAV is the price you pay to buy a unit of mutual fund. When you sell, the sell price can be lower than NAV if there is an exit load.
The mathematical formula for calculating NAV is:
Net Asset Value (NAV) = (Assets – Debts) / (Number of Outstanding units)
NAV of a mutual fund shouldn’t be confused with the market price of a stock. The stock price is decided by investors in the stock market and the market price can be different than the book value of the stock. The NAV of a mutual fund is the total value of the portfolio held by the scheme.
A higher NAV means that the scheme’s investments have done really well or the scheme has been around for a long time.
So it is not wise to base your mutual fund investment decision on the NAV of a scheme.