What is the net asset value of a UCITS unit



The net asset value (NAV) of a mutual fund is the price per unit of the system. If you think of a mutual fund as a large piece of fruit cut into several small pieces to represent each investor who owns exactly one unit, then the NAV is the dollar value of that unit. An apple worth Rs40 cut into 10 equal parts would give a value of Rs4 per unit.

Likewise, a mutual fund with a specified value divided among all issued units gives rise to the net asset value. The NAV number is not important. This is because the system collects money from investors, invests it in different securities and creates a portfolio with a monetary value; from there, the expenses are deducted to arrive at the NAV.

The initial NAV of Rs10 is set as a starting point for investors, as funds raised by the program have not yet been invested. As the amount begins to be invested, the value of the initial pool changes, depending on whether there are net gains or losses. This value, divided among all units and adjusted for expenses, is the new net asset value. It is not always that the initial NAV is at Rs10; for some money market funds such as liquid funds, the starting net asset value may also be Rs 1,000. The absolute value of the initial NAV is irrelevant as it is only after the money is invested that the true market value of the unit is represented.

There is no point in comparing the actual NAV of one plan with another. Let’s say that an XYZ Fund plan has a NAV of Rs25 and a similar ABC Fund program has a NAV of Rs50. We cannot deduce that the latter is more expensive than the former. The net asset value is derived from the collective value of the securities, which is then allocated among the units.

Therefore, we can only compare the NAVs of plans where the initial collective pool amount, start date and number of investors are exactly the same. For all other cases, what is relevant is the trend of the NAV or the daily variation. The daily change in the market value of one plan can be compared to another. You can also compare changes over longer periods of 3, 5 years or more. Just be sure to compare the NAVs of diagrams that are similar in construction.

The initial net asset value is the most indicated when making a new fund offering, but it is incorrect to invest in new fund offers thinking that you are getting a good deal. The value of a new fund depends on where it invests and whether, overall, those securities have gained or lost in value. NAV is neither cheap nor expensive, it just tells us the current value.

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