Equity funds are calculated based on the net asset value (NAV) of the underlying securities they hold. Here's how it works:
Understanding NAV
The NAV represents the total value of all assets in the fund, minus any liabilities. It is calculated daily and reflects the current market value of the securities.
Calculating NAV
To calculate the NAV of an equity fund, you need to consider the following steps:
- Determine the total market value of all assets: This includes the value of all stocks, bonds, and other securities held by the fund.
- Subtract any liabilities: This includes expenses, accrued interest, and other obligations.
- Divide the result by the number of outstanding units: This gives you the NAV per unit.
Example
Let's say an equity fund has:
- Total assets: $100 million
- Liabilities: $1 million
- Outstanding units: 10 million
The NAV per unit would be calculated as follows:
- $100 million (assets) - $1 million (liabilities) = $99 million
- $99 million / 10 million units = $9.90 per unit
Key Points
- NAV fluctuates daily: It changes based on the market performance of the underlying securities.
- Unit price reflects NAV: The price you pay or receive for a unit of the fund is directly related to the NAV.
- NAV is a measure of fund performance: Investors can track the NAV to assess the fund's performance over time.
