What Is Net Asset Value (NAV)?

When investing in a mutual fund, you will often hear the term Net Asset Value (NAV). NAV is essentially the value of a mutual fund's assets minus its liabilities divided by the number of mutual fund units. In other words, NAV is the net value of each mutual fund unit. When you want to buy mutual fund units, the price you must pay for each unit is the NAV. Therefore, you should have a good understanding of what NAV is.

Before we discuss NAV, let us understand where the mutual fund scheme comes from. Initially, the asset management company launches a new fund offering, also called a New Fund Offering (NFO). This new fund has an investment objective in certain instruments - such as equities, debt, large or small capitalisation shares, or sectoral shares - depending on the investment plan. The asset management company then markets the fund, inviting investors to invest. After the company collects funds from investors, the funds are used for investment in accordance with the investment objective.

So, how does the NAV figure emerge? After the collected funds are invested into, say, shares, the NAV of the mutual fund scheme will emerge. NAV is the market price of shares in the mutual fund scheme minus administrative costs (expense ratio). Because share prices change at all times, the mutual fund NAV also changes. Investors can then measure investment gains or losses by comparing the current mutual fund NAV with the initial NAV when purchasing mutual fund units.

For example, suppose you invest in a mutual fund unit for Rp.100.000,00 (NAV). Then, over a period of six months, your mutual fund unit increases to Rp. 120.000,00. This means your mutual fund has increased by 20 per cent during that period.

How to Easily Analyse Your Returns?

It is very important for you to understand what NAV is, as NAV can be used as a benchmark for investment returns. Using NAV, you can track returns daily, monthly or quarterly. Investment experts recommend that investors check the NAV every quarter to truly understand mutual fund performance. Another appropriate time to check NAV is when there are major events, such as stock market gains, market crashes, or interest rate changes.

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