NET ASSETS VALUE OF MUTUAL FUND

Made by- B.com(h),III Year• Sukriti • Yashika Vashishta

INDEX• WHAT IS “NET ASSETS VALUE”??• HOW NAV IS DETERMIND??• IMPORTANCE OF NET ASSETS VALUE • MUTUAL FUND- NET ASSETS VALUE• HOW MUTUAL FUND INVESTMENT IS

DIFFERENT FROM STOCK PRICE??• HOW DOES MUTUAL FUND NAV FLUCTUATE• MUTUAL FUND NAV AFTER DIVIDEND PAYOUT• SEBI GUIDELINE FOR NAV• DOES NAV REALLY MATTER ? • MUTUAL FUND DOES NOT ALWAYS RESTRICT

TO NAV• CONCLUSION• BIBLIOGRAPHY

Introduction

WHAT IS “NET

ASSETS VALUE”??

• 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.

How isNAV

determined????

Short-term mispricing of the underlying securities can result in over- or undervaluation of mutual fund shares, but this is not due to bidding on the funds' 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.

HOW IS NAV DETERMINED?

For example, technology stocks were overpriced

during the Dot-Com boom and that overpricing was reflected in the NAVs of technology funds.

Rebalancing on a regular basis takes advantage of such mispricing by systematically selling overvalued shares (selling high) and buying undervalued shares (buying low).

Representation of the per share value of an investment fund.

used in reference to systems of open funds.

Index used to evaluate Real Estate Investment Trusts (REITs).

Help their investment decisions Give investors a way to

compare a fund's performance with market or industry benchmarks

comparing long-term changes in its share price because funds periodically distribute capital gains to their fundholders, thus reducing their NAV.

IMPORTANCE OF

NET ASSETS VALUE

MUTUAL FUND- NET ASSETS VALUE

Mutual fund shares are purchased and redeemed at their net asset value (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 fund shares.

• 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

Responding to fluctuations in NAVs as if they were driven by supply and demand is irrational and will lead to dysfunctional investor behavior.

• NAV is determined solely by the value of the underlying securities.

Short-term mispricing of the underlying securities can result in over- or undervaluation of mutual fund shares, but this is not due to bidding on the funds' 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.

HOW MUTUAL FUND INVESTMENT IS DIFFERENT FROM STOCK PRICE??

The price of a stock is determined by company information - the performance of the company, public confidence in its services and other economic factors. The mutual fund NAV is a calculation of the fund assets divided by the number of total shares.

Mutual fund NAV is calculated at the end of the day after the daily closure of stock markets. 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 its assets. If all other factors remain constant, and the share prices, in which the mutual fund has invested, depreciate, then the NAV of the mutual fund will also reduce.

HOW DOES MUTUAL FUND NAV

FLUCTUATERise or drop in value of stock investments.

Change in number of shares in the mutual fund.

Payout of dividends and capital gains by the mutual fund to its investors

A mutual fund pays out dividend to its investors who have opted for the dividend plan. In such cases, the NAV of the mutual fund falls according to the amount of dividend paid.

For example, if the NAV of a mutual fund on 10 July 2010 was $10 and a per unit dividend of $2 is declared and paid out, then on 11 July 2010, the NAV of the mutual fund would fall to $8. The cash obtained by the investor can be reinvested to buy more shares of the mutual fund at lower value.

Some investors who seek pure capital appreciation may opt for an aggressive growth fund, without dividend payments. The returns then would be solely based on the mutual fund NAV appreciation. 

MUTUAL FUND NAV AFTER DIVIDEND PAYOUT

SEBI GUIDELINE FOR NAV

According to SEBI (mutual funds, second amendment) regulation, 2000 , a mutual fund can invest up to 5% of its NAV in the unlisted equity shares or equity related instruments in case of open ended schemes; while incase of close 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.

Stock Market Investing 1. In case of the stock market investing, the stock price of a company is usually different from its intrinsic worth, or what is called the book value of the share.2. The stock price could be higher (premium) or lower (discount) as compared to the book value of the company. A relatively lower share price would, other things being positive, make it an attractive purchase (as the share seems undervalued).3. The reason for such a ‘mis-pricing’ could be that the investors evaluate the company’s future profitability and suitably pay a higher or lower price as compared to its book value.

Investing in Mutual Funds1.In case of mutual funds investment units are bought at its NAV.

2.The calculation of NAV is based on the current market price of all the assets that the mutual fund owns. In other words, the NAV represents the fund’s intrinsic worth.

3.Increase or decrease in the NAV of a mutual fund is a function of how well the fund manager makes his investments bets in the market as well as how long the fund has been in the industry.

DOES NAV REALLY MATTER ?

  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

NAV: Does it matter?

NAV and Performance as on March 25, 2011.(Source: ACE MF, PERSONALFN Research)

MUTUAL FUND DOES NOT ALWAYS RESTRICTED TO NAV

We can explain through example:

Infosys company stock value :- The value of Infosys stock was Rs 10 when the company was initiated. In the early 1990s, being a small company, the initial revenue and profit was small. Infosys was able to grow its revenue and profit by 100% per year over a small initial base. Accordingly Infosys stock price also grew 100% on the stock market. As Infosys grew bigger and bigger 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 as the stock price of Infosys became higher and higher the growth or return potential from Infosys stock have been reducing. Extending the stock analogy that higher price of stock reduces the growth potential to mutual fund NAV is not correct

Mutual fund NAV value – Mutual fund is not invested into a single stock nor does mutual fund remains invested in the same stock for ever. For example when Infosys was growing faster then a mutual fund was invested in Infosys. When Infosys growth rate reduced, the mutual fund sold Infosys stock and invested into another stock which is growing faster than Infosys. This way mutual fund always keep selling slower growing stocks and buying faster growing stocks. So mutual fund, unlike a specific stock, do keep buying stocks and selling stocks. And also mutual fund is not invested into a specific stock for ever. Mutual fund is actually invested into multiple or portfolio of stocks, and mutual fund keep changing the portfolio of stocks. This way the growth rate of mutual fund is not restricted by high NAV value as compared to high value of a specific stock

CONCLUSION

Project help us to know about the importance of NAV.Project highlight how NAV can be determined.one can maintain there portfolio easily and efficiently by following project procedure.

Help to overcome all shortfalls which may impact our decision.

BIBLIOGRAPHY NAV of Mutual Fund

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