What is NAV in Mutual Funds?
NAV (Net Asset Value) is the price per unit of a mutual fund. Understanding NAV is essential for every mutual fund investor — yet many have dangerous misconceptions about it.
Common misconception: Many investors think a lower NAV fund is "cheaper" and better to buy. This is incorrect. NAV level has no relation to value or future returns.
What is NAV?
NAV (Net Asset Value) is the per-unit price of a mutual fund. Think of it as the "price" at which you buy or sell mutual fund units. It is calculated by dividing the fund's total net assets by the number of units outstanding.
NAV Formula
Total Assets
Value of all stocks, bonds, cash in portfolio
Total Liabilities
Expenses payable, management fees due
Units Outstanding
Total units held by all investors
NAV Calculation Example
Suppose a mutual fund has:
- • Portfolio value (stocks + bonds + cash): Rs 500 crore
- • Outstanding liabilities (fees payable): Rs 2 crore
- • Total units outstanding: 20 crore units
NAV = (500 Cr − 2 Cr) ÷ 20 Cr
NAV = Rs 24.90 per unit
How NAV Affects Your SIP
When you invest Rs 5,000 in a SIP, the number of units you receive depends on the NAV on that date:
| SIP Date | Amount | NAV | Units Purchased |
|---|---|---|---|
| Month 1 (Mkt rise) | Rs 5000 | Rs 25.5 | 196.078 units |
| Month 2 (Mkt fall) | Rs 5000 | Rs 22.3 | 224.215 units |
| Month 3 (Mkt flat) | Rs 5000 | Rs 23.1 | 216.450 units |
| Month 4 (Mkt rise) | Rs 5000 | Rs 26.8 | 186.567 units |
This is Rupee Cost Averaging in action — when NAV is lower (market fell), you get more units for the same Rs 5,000. Over time, your average cost per unit tends to be lower than the average NAV, improving your returns.
Key Facts About NAV
NAV changes daily
Calculated after market close each business day
Lower NAV ≠ Cheaper
Two funds with NAV 10 and 1000 can have identical returns
Cutoff times matter
Invest before 3 PM for same-day NAV; after 3 PM = next day
Growth vs Dividend
Growth plans reinvest earnings (NAV grows). Dividend distributes.
Frequently Asked Questions about NAV
What is NAV in mutual funds?
NAV (Net Asset Value) is the per-unit price of a mutual fund. It represents the fund's total assets minus liabilities, divided by the number of outstanding units. NAV is calculated at end of every business day based on the closing market prices of all securities in the fund's portfolio.
Is a lower NAV better than a higher NAV?
No. This is one of the most common misconceptions. A lower NAV does not make a fund cheaper or better. A fund with NAV Rs 10 and a fund with NAV Rs 1,000 invest the same Rs 10,000 — you simply get more units in the cheaper fund. What matters is the fund's performance (how much the NAV grows), not the absolute NAV value.
How is NAV calculated?
NAV = (Total Assets - Total Liabilities) / Number of Outstanding Units. Total assets include market value of all securities, cash, receivables. Total liabilities include payables, accrued expenses. For example: if a fund has Rs 100 crore in assets, Rs 1 crore in liabilities, and 5 crore units outstanding, NAV = (100 - 1) / 5 = Rs 19.80 per unit.
When is NAV declared for mutual funds?
For equity and hybrid mutual funds, NAV is declared once per day after 11 PM (based on same-day market prices if invested before 3 PM cutoff). For liquid and overnight funds, NAV may be declared at different times. Redemption value is always based on the NAV on the applicable date (usually same day for liquid, next day for equity funds).
Why does NAV change every day?
NAV changes daily because the underlying securities in the fund's portfolio change in value every market day. When the stock market rises, the value of equity-heavy funds' portfolios increases, pushing NAV up. When markets fall, NAV falls. Dividends received and interest earned also add to NAV. Corporate actions like stock splits affect individual securities.
Start Investing in Mutual Funds Today
Now that you understand NAV, take the first step and start building wealth with a disciplined SIP.
Disclaimer: Mutual fund investments are subject to market risks. | Trustner Asset Services Pvt. Ltd. | ARN-286886