# How is NAV calculated in SIP?

The total capital of a company is divided into small parts call shares; each share is then offered to an IPO shareholder. Then it goes to the secondary market, where ordinary people can buy shares at the prevailing rate.

Similarly, the overall corpus or AUM of a mutual fund divided into several smaller units. NAV is the cost of the unit. So, for example, if the total AUM of a fund is around one crore and divided into 2 lakh units, the value of each unit will be around 50.

Now that the fund manager is investing this money in some financial assets such as stocks, bonds, etc., the total value of the fund will vary depending on the current price of the financial assets on which the manager has invested the money. So let’s assume that the manager has invested some money in some shares of the company, whose value is now increasing. As the fund bought those shares, the total cost of the fund also increased. So imagine that the total AUM of the fund is now around one crore and ten lakhs. We now have 2 lakh units in the fund, and each unit is now ₹55 (about ₹1.1cr / 2L). So this is the calculation of NAV. Total AUM / total units.

Now let me tell you what SIP is all about?

If you want to invest in a mutual fund, there are two main ways of doing it.

• Lump-sum investment
• SIP investment

One, you can take out all the money you have and put it in the fund of your choice at one time. That is a call lump-sum investment.

The second is SIP, which is much better than lump-sum investment. In SIP, you choose a fund, investing a certain amount every month, or every quarter. What it does is, it takes advantage of price fluctuations (NAVs) to give you better returns than lump-sum.

Systematic Investment Plan (SIP) means recurring investment in a financial product such as a mutual fund. In simple words, it means the investment of a monthly amount (like Rs. 5,000) on a fixed date (definitely the 5th of every month).

You can also think of SIP that there is a standing instruction to invest a lump sum every month. There is no difference from taxation and returns made through lump-sum or SIP done every month.

SIP is more than cash flow in a financial product like mutual funds.

It is the most comfortable way to invest in mutual funds every month. The salary earners should invest every month to secure their future as soon as they receive a salary.

If the stock market is high or low for investment, then SIP also disciplines us in investing without worrying.

Investment in mutual funds can be made through a lump-sum or systemic investment plan. SIP is nothing more than investing a fixed amount on a daily/monthly/quarterly regular frequency. SIP provides an average unit cost advantage that reduces the impact of market volatility. However, it is a conservative investment strategy that uses the power of compounding to create long-term assets.

Net asset value or NAV indicates the market value of units in a fund. Units will be assigned to you based on current or ongoing NAV. The standard calculation of NAV is-

Net Asset Value (NAV) = (Asset – Date) / (Number of units outstanding)

Note: To decide what is the right SIP for your investment, you need to consider factors like investment horizon, risk appetite, etc.