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Net assets value of mutual fund


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Net assets value of mutual fund

  1. 1. Made by-,III Year• Sukriti• Yashika Vashishta
  2. 2. Introduction
  3. 3. • Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
  4. 4. How is NAVdetermined????
  5. 5. HOW IS NAV DETERMINED? Short-term mispricing of the underlying securitiescan result in over- or undervaluation of mutual fundshares, but this is not due to bidding on the fundsshares; it is due to bidding on the securities ownedby the fund. If the value of the underlying securities are inaggregate over- or undervalued, the NAV will beover- or undervalued in direct proportion to themispricing of the underlying securities.
  6. 6. For example, technology stocks were overpriced during theDot-Com boom and that overpricing was reflected in theNAVs of technology funds.Rebalancing on a regular basis takes advantage of suchmispricing by systematically selling overvalued shares (sellinghigh) and buying undervalued shares (buying low).
  7. 7. Representation of used in reference to Index used tothe per share value systems of open evaluate Realof an investment funds. Estate Investmentfund. Trusts (REITs).Help theirinvestment decisions comparing long-term Give investors a way to changes in its share price compare a funds because funds performance periodically distribute with market or industry capital gains to their benchmarks fundholders, thus reducing their NAV.
  8. 8. Mutual fund shares are purchased and redeemed at their net assetvalue (NAV) • mutual fund transactions are executed in dollar amounts rather than number of shares, thus there is no penalty for trading in uneven lots.The price of mutual fund shares is not determined by bidding on the fundshares. • The number of shares outstanding is always equal to the quantity demanded, as new shares are created to cover any excess of cash inflows and dissolved in proportion to excess cash outflows. • the per-share price of a mutual fund (its NAV) is not subject to the forces of supply and demand
  9. 9. Responding to fluctuations in NAVs as if they were driven bysupply and demand is irrational and will lead to dysfunctionalinvestor behavior. • NAV is determined solely by the value of the underlying securities.Short-term mispricing of the underlying securities can result in over- orundervaluation of mutual fund shares, but this is not due to bidding on thefunds shares; it is due to bidding on the securities owned by the fund. • If the value of the underlying securities are in aggregate over- or undervalued, the NAV will be over- or undervalued in direct proportion to the mispricing of the underlying securities.
  10. 10. The price of a stock is determined by company information - the performance ofthe company, public confidence in its services and other economic factors. Themutual fund NAV is a calculation of the fund assets divided by the number of totalshares.Mutual fund NAV is calculated at the end of the day after the daily closure of stockmarkets. Therefore NAV changes only on a daily basis. Stock prices, however,change any time during the day during stock market trading hours.. It can be seen that Mutual Fund NAVs are directly proportional to the value of itsassets. If all other factors remain constant, and the share prices, in which themutual fund has invested, depreciate, then the NAV of the mutual fund will alsoreduce.
  11. 11. Rise or drop Change in number ofin value of shares in thestock mutual Payout of dividends and capital gains by the mutual fund to its investors
  12. 12. A mutual fund pays out dividend to its investors who have opted for thedividend plan. In such cases, the NAV of the mutual fund falls according tothe amount of dividend paid.For example, if the NAV of a mutual fund on 10 July 2010 was $10 and a perunit dividend of $2 is declared and paid out, then on 11 July 2010, the NAVof the mutual fund would fall to $8. The cash obtained by the investor canbe reinvested to buy more shares of the mutual fund at lower value.Some investors who seek pure capital appreciation may opt for anaggressive growth fund, without dividend payments. The returns thenwould be solely based on the mutual fund NAV appreciation.
  13. 13. According to SEBI (mutual funds, second amendment) regulation, 2000 , amutual fund can invest up to 5% of its NAV in the unlisted equity shares orequity related instruments in case of open ended schemes; while incase ofclose ended schemes, mutual funds can now invest up to 10% of its NAV. Mutual funds are required to declare their NAV and sale repurchase prices of all schemes updated daily on a regular basis on the AMFI website by 8:00 pm and declare NAVs of their close ended schemes every Wednesday.
  14. 14. Stock Market Investing Investing in Mutual Funds1. In case of the stock market 1.In case of mutual funds investmentinvesting, the stock price of a company units are bought at its usually different from its intrinsicworth, or what is called the book valueof the share. 2.The calculation of NAV is based on the2. The stock price could be higher current market price of all the assets(premium) or lower (discount) as that the mutual fund owns. In othercompared to the book value of the words, the NAV represents the fund’scompany. A relatively lower share price intrinsic worth.would, other things being positive, makeit an attractive purchase (as the shareseems undervalued). 3.Increase or decrease in the NAV of a3. The reason for such a ‘mis-pricing’ mutual fund is a function of how well thecould be that the investors evaluate the fund manager makes his investmentscompany’s future profitability and bets in the market as well as how longsuitably pay a higher or lower price as the fund has been in the industry.compared to its book value.
  15. 15. NAV: Does it matter?NAV and Performance as on March 25, 2011. (Source: ACE MF, PERSONALFN Research) NAV ( ) 3-Yr (%) HDFC Equity (G) 275.36 18.4 HDFC Top 200 (G) 209.07 16.1 ICICI Pru Dynamic (G) 107.01 14.3 Sundaram Select Midcap (G) 142.25 13.7 UTI Mid Cap (G) 30.15 12.7 Religare Mid Cap (G) 13.42 7.6 Morgan Stanley Growth (G) 58.94 6.0 JM Mid Cap (G) 22.69 5.7
  16. 16. We can explain through example:Infosys company stock value :-The value of Infosys stock was Rs 10 when the company was initiated. In the early1990s, being a small company, the initial revenue and profit was small. Infosys was ableto grow its revenue and profit by 100% per year over a small initial base. AccordinglyInfosys stock price also grew 100% on the stock market. As Infosys grew bigger andbigger as a company, its revenue and profit growth rate have been reducing.Accordingly the Infosys stock price has been growing at a lesser rate. This means that asthe stock price of Infosys became higher and higher the growth or return potentialfrom Infosys stock have been reducing. Extending the stock analogy that higher priceof stock reduces the growth potential to mutual fund NAV is not correct
  17. 17. Mutual fund NAV value –Mutual fund is not invested into a single stock nor does mutualfund remains invested in the same stock for ever. For example whenInfosys was growing faster then a mutual fund was invested inInfosys. When Infosys growth rate reduced, the mutual fund soldInfosys stock and invested into another stock which is growingfaster than Infosys. This way mutual fund always keep sellingslower growing stocks and buying faster growing stocks. So mutualfund, unlike a specific stock, do keep buying stocks and sellingstocks. And also mutual fund is not invested into a specific stockfor ever. Mutual fund is actually invested into multiple or portfolioof stocks, and mutual fund keep changing the portfolio of stocks.This way the growth rate of mutual fund is not restricted by highNAV value as compared to high value of a specific stock
  18. 18. Project help us to know about the importanceof NAV.Project highlight how NAV can bedetermined.one can maintain there portfolio easily andefficiently by following project procedure.Help to overcome all shortfalls which mayimpact our decision.
  19. 19. NAV of Mutual Fundo www.avidarticles.como