Market Price Per Share Impacts Your Mutual Fund Returns

What is Market Price Per Share?

Market price per share refers to the last traded price (LTP) of a company’s share on a recognised stock exchange at a specific point in time. It is dictated by the transactions of buying and selling that are carried out within the trading periods.

During the market hours, its price varies depending on the current demand and supply rates in the secondary market. The market price reflects the average investor’s expectations about a company’s future performance.

How It Affects Mutual Fund NAV

The Net Asset Value (NAV) of an equity mutual fund depends on the market price of the securities held in its portfolio. Mutual funds may also invest in debt instruments, which are valued using pricing matrices provided by SEBI-authorised agencies. Under SEBI rules, listed equity shares are usually valued at their closing price on the stock exchange where they are most actively traded.

To calculate NAV, a fund subtracts its liabilities from total assets and divides the remaining value by the number of outstanding units. In the case of an equity scheme with 1,000 shares whose closing prices are ₹500 per share, the value of that holding (₹5,00,000) would form part of the total portfolio value used to calculate the NAV.

In open-ended funds, investors purchase and sell units at NAV. Also, in the ETFs and exchange-listed closed-ended funds, the units can be at a premium or discount to the NAV, swayed by the market demand and supply.

Why Market Price Matters for Investors

Market Price Per Share is referenced in portfolio disclosures, unrealised gain calculations, and performance reporting within scheme documents. Portfolio valuation and unrealised gains reflect changes in the market value of underlying securities.

It also helps assess whether the mutual fund performance aligns with broader market movements. In the event that benchmark indices are increasing while the NAV of your fund is not increasing, then this could be a sign of changes in the allocation of your fund when compared to the benchmark portfolio.

Market prices are frequently described in regulatory disclosures in explaining the allocation of assets and exposure to risk. The knowledge of this term allows one to get a better understanding of these documents.