Question

How does NAV change when large redemptions occur in a mutual fund scheme?

Accepted Answer

NAV itself does not change due to redemptions — units are cancelled and assets liquidated; remaining unit holders are unaffected if assets are sold at fair market value — NAV is calculated as net assets divided by units. When redemptions occur, both the numerator (assets — sold to raise cash for payment) and denominator (units — cancelled) decrease proportionally. If assets are sold at fair market value, the NAV for remaining investors is unaffected. The risk is if a large redemption forces selling illiquid assets at a discount — this can depress NAV for remaining investors.