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Why your mutual fund NAV may have declined Monday despite markets closing up


The Net Asset Value (NAV) of a mutual fund is declared on a daily basis at the end of the day. It is the value of a mutual fund, based on the value of its portfolio. The NAV reflects movements in the underlying portfolio and hence, for instance, equity fund NAVs move broadly in sync with market indices such as the Nifty or Sensex. When markets are up 1%, equity mutual funds will be up by around this amount, on average. Funds will be up by larger or smaller percentages due to portfolio outperformance or underperformance and portfolio beta (a measure of portfolio responsiveness to the index). However this may not have been the case on Monday.

The Union Budget was presented on 1stFebruary, which was a Saturday. Markets were open on that day, but there was no buying and selling of mutual funds. The Association of Mutual Funds of India (AMFI) put up a notice stating that it would not be a business day for mutual funds. As a result mutual funds did not put out NAVs reflecting the drop in markets on Saturday. The Nifty closed up 0.4% on Monday but this was not big enough to compensate for the sharp fall on Saturday. Hence mutual fund NAVs are likely to show negative returns despite the positive close of the markets on Monday. This is because they will account for the aggregate market move since Friday, which is on balance, negative.

Investors should note that daily tracking of NAVs is not the most optimal approach. Long term investing entails a multi-year horizon over which daily movements get ironed out. However if you are puzzled by the movement in your fund NAVs compared to the market, this is the explanation.

Source : Live Mint

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