What is Net Assets Value (NAV)?
Net Asset Value (NAV) is the market value of each unit of a ULIP fund. In simple words, if you add the market value of all the investments in the fund and divide it by the number of units in that fund, the resulting figure will be NAV. Just like shares have a share price; ULIP funds have a NAV.
It is not wise to base your investment decision on the NAV of a ULIP fund. NAV does not reflect future prospects of the ULIP fund.
Suppose, you invest ₹10,000 each in Fund A whose NAV is ₹20 and Fund B whose NAV is ₹100. You will be allotted 500 units of Fund A and 100 units of Fund B. Assuming that both funds have invested their entire corpus in exactly same stocks and in the same proportions if the underlying stocks collectively appreciate by 10%, the NAV of the two funds should also rise by 10%, to ₹22 and ₹110, respectively. Thus, in both scenarios, the value of your investment increases to ₹ 11,000.
Thus, the current NAV of a fund does not have any impact on the returns.
How does investment-timing affect NAV?
In case of ULIP fund, the cut off time is 3 p.m. You will be allotted the NAV of the same day or the next day according to the time at which you submit your application and funds. Normally, if the application form and funds are received before 3 p.m.; units are allotted based on same day's NAV otherwise units are allotted based on next day's NAV.
Change in valuation methodology of equity shares as prescribed by Insurance and Regulatory Development Authority of India (IRDAI)
Insurance and Regulatory Development Authority of India through its circular number IRDA/F&I/INV/CIR/213/10/2013 dated October 30, 2013 has mandated Insurers to select either NSE or BSE as the Primary and Secondary exchange for valuation of its equity shares. The Company has, owing to the volume of trades, selected NSE as the Primary Exchange and BSE as the Secondary Exchange with effect from November 28, 2013. Accordingly, the equity shares held by the Company shall be valued at the closing price of the Primary exchange i.e. NSE. In case a security is not listed or traded on NSE, the Company shall use the closing price of the secondary exchange i.e. BSE.
Modification in NAV computation
As stipulated by IRDAI effective August 18, 2011
As stipulated by the Insurance and Regulatory Development Authority (IRDAI), in its circular dated July 29, 2011 the formula for computation of the Net Asset Value Per Unit (NAV) for Linked funds stands modified.
Old formula as prescribed by IRDAI and as contained in the policy document: Market value of the investment plus / (minus) expenses incurred in the purchase / (sale) of assets plus current assets and accrued interest (net of fund management charges) less current liabilities and provisions, divided by, number of units outstanding under the fund at valuation date (before creation / redemption of units).
Modified formula as stipulated by IRDAI effective August 18, 2011: Market value of the investment held by the fund plus value of current assets less value of current liabilities and provisions, if any and divided by the number of units existing on the valuation date (before creation/redemption of units)
The policy document shall accordingly stand modified.
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