What Is NAV in Mutual Funds? How It Works and Why It Matters

Every time you invest in a mutual fund in India, you buy units at the current NAV — Net Asset Value. It is the single most cited number in fund statements, yet it is also one of the most misunderstood. Many investors chase newly launched funds with a ₹10 NAV believing they are getting a bargain. They are not. Understanding what NAV actually represents (and what it does not) is foundational to becoming a smarter investor.

How NAV Is Calculated

NAV is calculated once every business day after market close by the AMC (Asset Management Company). The formula is:

NAV = (Total Assets − Total Liabilities) ÷ Number of Outstanding Units

Where:
Total Assets  = Market value of all securities held + cash + accrued income
Total Liabilities = Accrued expenses + management fees + other payables

Example:

• Fund holds stocks and bonds worth ₹500 crore
• Cash and receivables: ₹10 crore
• Accrued expenses and fees: ₹2 crore
• Outstanding units: 5,08,00,000

NAV = (500 + 10 − 2) crore ÷ 5,08,00,000 units
    = 508 crore ÷ 5,08,00,000
    = ₹100 per unit

SEBI requires AMCs to publish NAV by 11 PM on the same business day for most schemes.

What Moves the NAV?

The last point is important: the expense ratio is deducted from NAV every single day (1/365th of the annual rate). This is why direct plans, with lower expense ratios, show higher NAVs than regular plans over time.

The ₹10 NAV Myth

When a new fund offer (NFO) launches at ₹10, marketing often implies you are buying "cheap." This is misleading. NAV is not a stock price — it does not represent how expensive or cheap a fund is.

Consider two funds tracking the same index:

• Fund A: launched 10 years ago, NAV = ₹450
• Fund B: just launched, NAV = ₹10

If both funds have an identical portfolio, investing ₹45,000 gives you:

• Fund A: 100 units at ₹450
• Fund B: 4,500 units at ₹10

After one year, if the portfolio grows 12%:

• Fund A NAV: ₹504 → your holding = ₹50,400
• Fund B NAV: ₹11.20 → your holding = 4,500 × ₹11.20 = ₹50,400

Identical outcome. The number of units and NAV are inversely related. What matters is the quality of the portfolio, not the face value of each unit.

NAV and Transaction Cut-Off Times

SEBI's cut-off time rules determine which day's NAV you get:

This matters most for large lump-sum investments where a 1% move in NAV equals meaningful money.

NAV vs Market Price (for ETFs)

Exchange Traded Funds (ETFs) have both a NAV and a market price:

• NAV is calculated once daily based on underlying portfolio value
• Market price is what buyers and sellers agree on throughout the trading day

For liquid ETFs like Nifty BeES, the two stay very close. For less-traded ETFs, the market price can deviate — sometimes you pay a premium to NAV. Always check the iNAV (indicative NAV) before trading an ETF.

How to Use NAV Practically

1. Track your returns — your return = (Current NAV − Purchase NAV) / Purchase NAV × 100. If you bought at ₹80 and NAV is now ₹112, your return is 40%.
2. Compare growth vs IDCW plans — the growth plan NAV rises steadily; the IDCW plan NAV drops after each payout. Total return comparison requires adding back dividends received.
3. Do not time NAV — unlike stocks, you cannot "time" a mutual fund NAV for arbitrage. You get the end-of-day price regardless of when you place the order (within cut-off).

Use our SIP Calculator to project how your unit count and overall corpus grow over time regardless of starting NAV.

These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.