What is Net Asset Value (NAV) in Mutual Funds?

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What is Net Asset Value (NAV) in Mutual Funds?
What is Net Asset Value (NAV) in Mutual Funds?

What is Net Asset Value (NAV) in Mutual Funds? – Even so, there are also many people who are just starting to invest and don’t really understand what NAV is. Well, if you are one of them, it is important to know what NAV is and why it is important to know. To understand more about the meaning of NAV, see the full review below.

What is NAV?

What is NAV?
What is NAV?

As mentioned above, NAV stands for net asset value. This value is one of the important factors that must be considered in assessing the performance of investment managers. When you want to invest in a mutual fund instrument, you need to know what the NAV of the mutual fund product you choose is.

Quoted from the wikipedia site Net asset value (NAV) is the value of an entity’s assets minus the value of its liabilities, often in relation to open-end or mutual funds, since shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net asset value. It is also a key figure with regard to hedge funds and venture capital funds when calculating the value of the underlying investments in these funds by investors.

Many people think that NAV is the price of the mutual fund product to be purchased. In fact, NAV is a value that shows the assets managed in a mutual fund.

Etymologically, NAV comes from the English term net asset value (NAV) which means the value of net assets. The definition of NAV refers to the amount of funds managed by a mutual fund, which includes cash, deposits, stocks, or bonds.

NAV itself is often accompanied by the unit of participation called NAV/UP or the price of a mutual fund which is the benchmark for calculating the price of a mutual fund. If you want to transact mutual funds, then you need to know what the NAV of a mutual fund is so that you can estimate the number of units to be purchased and the amount of profit that may be obtained when selling it.

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In short, NAV is the market price of a mutual fund’s stock minus administrative costs (expense ratio). In accordance with the fluctuating stock price movements, the NAV of mutual funds will also change. These changes must be monitored regularly so that investors can measure the level of profits and losses generated by comparing the current NAV of the mutual fund with the NAV of the first time buying the mutual fund unit.

For example, you invest by buying a mutual fund unit of IDR 100,000 (NAV). In the next three months, your mutual fund unit will increase by up to IDR 150 thousand. This means that mutual funds have increased by 50 percent in that period.

Meanwhile, the number of mutual fund participation units is fixed if you do not purchase the mutual fund within a certain period of time (top up). However, this amount can decrease if you sell your mutual fund assets (redemption).

The potential profit obtained from mutual funds can be seen by monitoring the movement of NAV which changes every day. This change will be calculated by the custodian bank on a daily basis when the trade is completed. The results will be published by the investment manager as the manager of the mutual fund portfolio in the form of reports or news in the mass media.

The Importance of NAV in Mutual Funds

The Importance of NAV in Mutual Funds
The Importance of NAV in Mutual Funds

Although the NAV of a mutual fund is one of the important things in determining the number of units of participation, not a few investors use it as a tool to see the performance of a mutual fund.

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In fact, NAV/UP in mutual funds cannot be used as a reference to determine the quality of mutual fund products. Mutual fund performance can actually be seen from the history of profits made previously.

NAV per unit of participation will only provide information regarding how much underlying asset can be calculated so that it does not affect investment choices. So, you cannot determine whether a mutual fund product has superior performance just by looking at the NAV/UP.

In essence, the NAV of a mutual fund is the value you need to know to calculate the number of assets that will be owned based on the funds that you will invest in the mutual fund.

Meanwhile, to prevent losses in investing in mutual funds, make sure you recognize each type of mutual fund, how much potential return you can get, and how much risk you will have to bear later.

Factors Affecting NAV

Factors Affecting NAV
Factors Affecting NAV

The size of the NAV/UP in a mutual fund can be influenced by many factors, including the following.

1. Funds under management

The amount of funds invested by investors and managed by investment managers will affect the NAV/UP value. This managed fund comes from the amount of money invested by investors. The more funds under management, the higher the NAV/UP value of a mutual fund product.

2. Fair market value

According to the Financial Services Authority, one of the factors that influence changes in managed funds is the fair market value. This value is obtained from securities transactions that are carried out freely and without coercion or also called liquidity.

In general, this NPW is regulated by the Securities Pricing Agency, which is a company that already has a business license from Bapepam-LK to conduct an assessment of the price of securities. Meanwhile, the fair market price is obtained from the calculation of the transaction value of an investment product. Therefore, NPW will also change every day.

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How to Calculate NAV

How to Calculate NAV
How to Calculate NAV

The applicable NAV price per unit according is $0.067 or in accordance with applicable regulations and policies. This price is commonly called the basic value of NAV/UP. This value will change according to the market price so you need to monitor it regularly.

Then, how to calculate NAV/UP in mutual funds?

Generally, NAV is calculated by adding up the total net assets of all funds (asset under management) in the mutual fund, then divided by the total number of units on the market.

The total amount of net assets in question is derived from the market value for the types of investment instruments in mutual funds, such as money market securities, time deposits, bonds, and stocks. The result of dividing total net assets by total units is then reduced by operating costs such as costs for investment managers, custodian banks, and others.

This is an explanation of what NAV is, the importance of NAV in mutual funds, what are the factors that affect NAV, and how to calculate it. Keep in mind that NAV is the value needed to be a reference in buying or selling mutual funds. The size of the NAV of a mutual fund does not indicate that a mutual fund product is cheap or expensive.

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