Net asset value or “NAV,” of a fund is determined by dividing the net assets of the scheme by the number of outstanding units on the valuation date. NAV is calculated by adding up the present market value of securities, cash, accrued income owned by the fund then subtracting liabilities and dividing the result by the number of units outstanding.
Total Value of Securities (Bonds, Debentures, Equity etc.) : $ 2000
Cash : $2500
Liabilities : $1500
Total outstanding Units : $150
NAV = [(2000 +2500-1500)/150] = $20 per unit
Mutual Funds generally calculate their NAV at least once every business day on basis of market price. A closed-end fund -whose shares are not required to be repurchased by the fund i.e. not redeemable – is not subject to this requirement but may be published at monthly or quarterly intervals. The share price of mutual funds is based on their NAV. The price that investors pay to purchase mutual fund is the approximate per share NAV, plus any fees that the fund imposes at purchase. The price that investors receive on redemptions is the approximate per share NAV at redemption, minus any fees that the fund deducts at that time.
What is LOAD?
A load is a payment an investor makes to the mutual fund’s management team or a broker when he buys or sells the shares .No-load funds are direct opposite of Load funds. They do not charge investors sales fees or commissions. In a load fund, the seller of the fund shares, generally a broker, receives a load i.e. the sales commission paid to the seller. The individual or the company responsible for the fund organization does not receive a load. So, a load is no incentive for the fund manager. However, a secondary party or a broker benefits financially for assisting the investor in buying shares of the fund.
The mutual fund loads can be of following types:
Front End Loads
Back End Loads
Front end loads and purchase fees are paid by the investor on buying units of the mutual fund are purchased. These loads come in Entry loads so front loads and purchase fees are deducted from the investor’s cash before the money is deposited into the account. For example, Tom wants to buy shares in a mutual fund and pays the broker $4000 on a fund with a 5% front load. Here the money deposited into the account : $4000 – 5% = $3800.
Back end loads and redemption fees come under Exit Load and are paid by the investor when mutual fund shares are sold. Again Back end loads go to the broker and redemption fees is for management team. These loads are deducted from the account of the investor. For example, an investor sells all their shares in a mutual fund and the value of those shares is $5,000 and the fund has a back end load of 2.0%. This means the account holder would receive $5,000 – 2.0% or $4,900.The exchange fee is charged by some mutual funds when the shareholder exchanges shares in one mutual fund for another. This happens when the fund exchange occurs within the same funds.
No Load Mutual Funds: A notion that is false is that a mutual fund that charges a load does not mean that fund is better than a no load mutual fund. Most of times it is really advantageous to buy no load mutual funds. When an individual purchases shares of a no-load fund, the complete amount goes towards the investment. For example, if the individual puts $3,000 into a no-load fund, that entire $3,000 is invested. While a front load of say 4% will set you back by $120 while there is no set back in former case. So unless the fund is giving a consistent performance in the market ,its better to invest into a no load mutual fund. In this example, the fund is already starting out with a 4% disadvantage – which is a considerable amount for short term funds.