When investing in mutual funds, one of the most important terms investors come across is NAV, or Net Asset Value. Understanding the liquid mutual fund NAV can help beginners know how the value of their investment is calculated and how units are purchased or redeemed.
NAV represents the per-unit value of a mutual fund scheme. It is calculated using the value of the scheme’s assets after adjusting for liabilities and expenses, divided by the number of outstanding units. Mutual fund NAVs are generally calculated on each business day.
What Is Liquid Mutual Fund NAV?
The liquid mutual fund NAV is the value assigned to each unit of a liquid mutual fund. Liquid funds invest primarily in short-term money-market and debt instruments, so the value of the underlying portfolio contributes to the fund's NAV.
For example, suppose a liquid fund has net assets worth ₹100 crore and 10 crore units outstanding.
NAV = Net Assets ÷ Outstanding Units
Therefore:
₹100 crore ÷ 10 crore units = ₹10 NAV per unit
If you invest ₹10,000 at an applicable NAV of ₹10, you would receive approximately 1,000 units, before considering any applicable transaction-related charges.
How Is NAV Calculated?
The basic formula for NAV is:
NAV = (Assets − Liabilities) ÷ Total Outstanding Units
Assets can include the market or fair value of investments, accrued income, receivables and other assets. Liabilities can include expenses, payables and other obligations of the scheme.
Because the value of investments and accrued income can change, the NAV can also change from one business day to another.
Does a Higher NAV Mean a Better Liquid Fund?
No. A common misconception is that a fund with a ₹10 NAV is cheaper or better than a fund with a ₹20 NAV.
The NAV by itself does not tell you whether a mutual fund is cheap or expensive. Two funds can have different NAVs but deliver similar percentage growth if their underlying investments perform similarly. AMFI specifically notes that NAV should not be used alone to judge whether one mutual fund is better than another.
Instead of focusing only on NAV, investors should consider factors such as portfolio quality, risk, expense ratio, consistency and investment objective.
How Does NAV Affect Your Investment?
Suppose you invest ₹50,000 in a liquid mutual fund when the applicable NAV is ₹25.
Units received = ₹50,000 ÷ ₹25 = 2,000 units
If the NAV later becomes ₹25.50, the value of your 2,000 units would be approximately ₹51,000, before considering applicable charges or taxes.
This shows why your investment value changes when the NAV changes.
Liquid Mutual Fund NAV for Redemption
NAV is also relevant when you redeem your liquid fund units. The applicable redemption price depends on the applicable NAV and any exit load, if applicable.
However, the NAV you receive is not necessarily the NAV visible on the screen at the moment you place an order. Applicable NAV depends on the transaction rules, timing and realization of funds. Liquid funds have specific applicable-NAV rules, so investors should check the scheme's current documents before investing or redeeming.
Where Can You Check Liquid Fund NAV?
Investors can check current and historical mutual fund NAV information through the fund house's website or the Association of Mutual Funds in India (AMFI). AMFI provides NAV information and historical NAV tools for mutual fund schemes.
Final Thoughts
Understanding liquid mutual fund NAV is useful for anyone considering a liquid fund for short-term investment needs. NAV tells you the per-unit value of the scheme, but it should not be the only factor used to evaluate a fund.
Before investing, look at the fund's portfolio, risk level, expenses, investment objective and applicable transaction rules. Most importantly, remember that mutual funds are market-linked investments and returns are not guaranteed.
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