Mutual fund NAV is one of the most misunderstood numbers in investing. Many beginners believe a low NAV means the fund is cheap and a high NAV means it’s expensive — but that’s far from the truth. In reality, NAV is just the per-unit value of a mutual fund at a given time, and understanding it can make you a smarter investor.
Introduction — The NAV Confusion
If you’ve ever opened a mutual fund factsheet, you’ve probably noticed a number called NAV, short for Net Asset Value.
For many first-time investors, this number becomes the deciding factor.
A fund with an NAV of ₹12 looks “cheaper” than one with an NAV of ₹120, right? After all, you get more units for the same amount of money.
That’s a common misconception — and it can be costly.
In reality, NAV is just a snapshot of a fund’s value per unit at a given time. It’s not a discount label, it’s not a measure of how “expensive” a fund is, and it’s definitely not the only thing you should consider before investing.
This guide will walk you through:
- What NAV really means.
- How units work in mutual funds.
- Myths that mislead investors.
- When NAV matters and when it doesn’t.
1. What is NAV?
Think of a mutual fund as a basket holding different investments — stocks, bonds, gold, or cash. If you were to sell everything inside that basket today, pay off any bills the fund owes, and then divide the money equally among all the investors, the amount each unit would represent is the NAV.
Formula:
NAV = (Total Assets – Total Liabilities) ÷ Number of Units Outstanding
Example:
- Fund’s holdings (assets) = ₹500 crore.
- Expenses and other liabilities = ₹5 crore.
- Units issued to investors = 10 crore.
NAV = (₹500 crore – ₹5 crore) ÷ 10 crore = ₹49.50 per unit.
This value changes once a day, calculated after the markets close.
2. What Are Mutual Fund Units?
When you invest in a mutual fund, you don’t own specific stocks or bonds in the fund’s portfolio. Instead, you own unitsof the fund itself.
The number of units you receive is simply your investment amount divided by the current NAV.
Example:
You invest ₹50,000 in a fund with an NAV of ₹25.
Units allotted = ₹50,000 ÷ ₹25 = 2000 units.
If the NAV rises to ₹30, your investment value becomes 2000 × ₹30 = ₹60,000.
3. NAV vs. Stock Price — The Key Difference
It’s easy to confuse NAV with the price of a company’s share. But they are very different:
| NAV (Mutual Fund) | Stock Price (Company Share) |
|---|---|
| Represents the per-unit value of all assets in the fund | Represents market’s value of a single company |
| Calculated once a day after market close | Changes every second during trading hours |
| Based on total portfolio value | Based on market demand and supply |
Key point: High or low NAV doesn’t mean a fund is better or worse. It only shows the per-unit value, not the potential returns.
4. How NAV is Calculated — Step by Step
Every trading day, fund houses follow this process:
- Value the portfolio — All stocks and bonds are priced at their market closing value.
- Add cash or receivables — Any uninvested cash or dividends due.
- Subtract liabilities — Management fees, operational costs, and any other expenses.
- Divide by units — This gives the day’s NAV.
Mini Example:
Assets:
- Stocks = ₹300 crore
- Bonds = ₹150 crore
- Cash = ₹10 crore
Total = ₹460 crore
Liabilities = ₹5 crore
Units = 9 crore
NAV = (₹460 – ₹5) ÷ 9 = ₹50.56.
5. When NAV Actually Matters
- Buying into a fund: NAV decides how many units you’ll get.
- Redeeming your investment: NAV tells you the payout you’ll receive.
- Tracking changes in value: Comparing NAV over time shows if your investment has grown.
6. When NAV Doesn’t Matter
NAV should not be the main deciding factor when choosing a fund.
A ₹10 NAV fund and a ₹100 NAV fund can deliver identical percentage returns. What matters more is:
- Past performance in different market conditions.
- Fund manager’s track record.
- Expense ratio and investment strategy.
7. Common Myths About NAV
Myth 1: Low NAV means the fund is cheaper.
Truth: It only means each unit is worth less. The percentage return potential is the same as a higher NAV fund with the same portfolio.
Myth 2: High NAV means the fund is expensive.
Truth: NAV reflects growth over time, not price worthiness.
Myth 3: You can predict future performance from NAV.
Truth: NAV is backward-looking; it’s based on the day’s closing prices.
8. Example — Same Return, Different NAV
- Fund A: NAV ₹10, grows 10% → NAV ₹11.
- Fund B: NAV ₹100, grows 10% → NAV ₹110.
If you invest ₹10,000 in each:
- Fund A: 1000 units × ₹11 = ₹11,000.
- Fund B: 100 units × ₹110 = ₹11,000.
Different NAV, same return.
9. NAV Across Fund Types
- Equity Funds: More volatility due to market movements.
- Debt Funds: Smoother changes, affected by interest rates.
- Hybrid Funds: Mixed behaviour.
- Liquid Funds: Small, steady growth.
10. Cut-off Times & NAV Applicability
SEBI rules decide which day’s NAV applies:
- Purchase before 3:00 PM → same day’s NAV.
- After 3:00 PM → next business day’s NAV.
11. What Affects NAV Movement
- Market price changes in the portfolio.
- Dividend payouts (NAV drops post payout).
- Expense ratio impact over time.
12. Practical Tips for Investors
- Look at returns in percentage, not just NAV levels.
- Focus on consistency, not one-year spikes.
- Read the fund fact sheet before investing.
Conclusion
NAV is an important part of mutual funds, but it’s not the magic number to base all your decisions on. It’s a measure of per-unit value, not a signal of cheapness or quality.
For smart investing, combine NAV understanding with deeper research into a fund’s strategy, track record, and risk profile.
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