How Important is Mutual Fund NAV? This is the definition and how to calculate it!

How Important is Mutual Fund NAV? This is the definition and how to calculate it!

How Important is Mutual Fund NAV

Investors who are already in the investment world, of course, are familiar with the term mutual fund NAV. NAV stands for Net Asset Value which is one of the important factors in mutual fund products. 

The value of NAV in mutual funds can be used as one of the considerations in assessing the performance of investment managers. So, when you want to invest in one type of mutual fund, you need to look at the NAV value of the mutual fund product. 

However, it is important to note that NAV is not the price of the mutual fund but shows how much the value of the assets managed in the mutual fund is. 

To understand more about the NAV of mutual funds, see the full review below.

What is Mutual Fund NAV?

Mutual Fund NAV is the total value of an investment in mutual fund products, which describes the total net worth of the mutual fund each day.

In simple terms, NAV is the number of funds managed by the investment manager for a mutual fund product which is calculated every day according to the trading day of the stock exchange. Which will then be published to various media for the public to know.

Generally, mutual fund products are sold in units. So, investors buy mutual funds per unit from NAV.

For example, the NAV price of a mixed mutual fund in investment manager A is Rp. 1,500 and you invest Rp. 500 thousand, then you have 333 units in the mutual fund product. The term is named NAV/UP.

NAV/UP is the fair price of the mutual fund portfolio after deducting operational costs and divided by the number of units owned by the investor at that time.

The value of NAV/UP generally changes every day because it is influenced by buying and selling transactions made by investors.

Also Read: Investment Manager, What is Their Role in Mutual Fund Investment?

The Role of NAB in Mutual Funds

Not a few investors see the performance of mutual funds from NAV/UP, even though the role of NAV/UP in mutual funds cannot be used as a reference for evaluating whether the mutual fund is good or not.

So, as an investor, you need to know that the performance of a mutual fund can be seen from the history of the profits generated.

Basically, NAV/UP does not affect mutual fund investment choices because NAV/UP only tells how the underlying asset is calculated. So, in choosing a type of mutual fund a low NAV/UP value does not make a better investment fund or vice versa.

Thus, it is concluded that in choosing a mutual fund investment you must identify each type of mutual fund so that you can know the potential returns and risks that you must bear. In addition, you also have to choose a mutual fund instrument that fits your risk profile.

Factors Affecting Mutual Fund NAV

There are several factors that affect the size of the NAV/UP price in mutual fund investments. Anything? Here are some of them:

1. Increase in managed funds

The amount of managed funds are obtained from the funds invested by investors. So, if the amount of managed funds are getting bigger, it will affect the NAV/UP value.

It can be concluded that the larger the managed fund, the higher the NAV/UP price in the mutual fund product.

The managed fund itself is obtained from the large number of investors who invest. 

2. Changes in Fair Market Value (NPW)

As reported on the website of the Financial Services Authority (OJK), changes in managed funds are also influenced by the Fair Market Value (NPW). NPW is the value obtained from securities transactions carried out by parties freely without coercion or liquidity.

Generally, NPW is regulated by the Securities Pricing Agency (LPHE). LPHE is a company that has obtained a business license from BAPEPAM and LK whose task is to conduct an assessment of the price of securities.

Meanwhile, the LPHE determines the fair market price based on the transaction value of the investment product. Therefore, NPW changes every day. 

3. Bank Indonesia interest rates

Other factors that affect the NAV of mutual funds are the Bank Indonesia interest rate, the Bank Indonesia interest rate or the BI rate is an interest rate that reflects the monetary policy issued by Bank Indonesia and announced to the public. 

Therefore, if Bank Indonesia's interest rates are raised, investors will choose to withdraw their funds to shift to investment instruments that provide more profit.

This causes the NAV of mutual funds to fluctuate in price, and the profits provided have decreased.

How to calculate Mutual Fund NAV

According to OJK, a company that is already in the stock exchange or public offering ( initial public offering / IPO), the NAV/UP price is set at IDR 1,000 or in accordance with applicable regulations.

This price can be considered as the basic value of NAV/UP, then the NAV/UP price will change according to market price movements. Therefore, the price of NAV/UP will change every day.

Then, how to calculate NAV/UP in mutual fund investment?

NAV is generally calculated by adding up the total net assets of all funds (Assets Under Management) in the mutual fund, then this amount will be divided by the total units in the market.

Just to note, total net assets come from the market value of investment instruments in mutual funds, such as money market securities, time deposits, bonds, and stocks.

So, the result of total net assets divided by total units will be reduced by operating costs such as investment management fees, custodial bank fees, and others.

Also Read: Getting to Know Mutual Fund Products and How to Develop Wealth!

How much investment funds should be prepared?

For those of you who want to make a lot of money from investing in mutual funds, here are the funds you have to spend if you calculate based on NAV/UP:

As quoted from the official website of Bareksa.com, it is known that the working performance of fixed income mutual funds reaches 30.76% percent within one year.

The investment instrument is managed by PT Mega Asset Mantap Plus with a NAV/UP price of IDR 1,790.15.

If you have funds of Rp. 1 million, it means that you get Rp. 1,000,000 / Rp. 1,790.15, which is 558.61 units of mutual funds.

So, by spending IDR 1 million, you can have 558.61 units if you invest in PT Mega Asset Mantap Plus. However, one of the advantages of investing in mutual funds is that you can start with a small capital of Rp. 50 thousand.

The following is a simulation of the profit calculation if you invest in a fixed income mutual fund within one year and consistently disburse Rp 1 million every month.

IDR 1 million X 12 months = IDR 12 million X 30.76% ( return a year) = IDR 3,691,200. The profit is reduced by the investment manager's fee of Rp. 50 thousand. Then the net profit you get is IDR 3,691,200 – IDR 50,000 = IDR 3,641,200. 

That way the total money you get when withdrawing funds is IDR 12 million (capital) + IDR 3,641,200 (net profit) = IDR 15,641,200.

Well, that's the advantage you get by investing in it. You can also maximize profits by diverting the profits you get to the business sector.

In order for your business to grow, you can take advantage of the funding program from Pintek to get business capital assistance.

One of the Pintek loan products that you can choose is PO/Invoice Funding which can be used to fulfill orders from educational institutions such as buying stationery, books, laptops, school infrastructure, and so on.