Sunday, 6 August 2017

Educational Series 1.1

Definition of 'Net Asset Value'

Definition: Net asset value(NAV) is the value of a fund's asset less the value of its liabilities per unit.

NAV = (Value of Assets-Value of Liabilities)/number of units outstanding

Description: NAV is often associated with mutual funds, and helps an investor determine if the fund is overvalued or undervalued. When we talk of open-end funds, NAV is crucial. NAV gives the fund's value that an investor will be entitled to at the time of withdrawal of investment. In case of a close-end fund, which is a mutual fund with fixed number of units, price per unit is determined by market and is either below or above the NAV.

Definition of 'New Fund Offer'

Definition: A new fund offer (NFO) is the first time subscription offer for a new scheme launched by the asset management companies (AMCs). A new fund offer is launched in the market to raise capital from the public in order to buy securities like shares, govt. bonds etc. from the market.

Description: NFO is similar to the initial public offer (IPO) with an attempt to raise capital from the market. NFOs are offered for a stipulated period. This means that the investors opting to invest in these schemes at the offer price (in most cases the offer price is fixed at Rs 10) can do so in this stipulated period only. After the NFO period, investors can take exposure in these funds only at the prevailing NAV.


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