NAV, or Net Asset Value, is the per-unit price of a mutual fund scheme. It equals the total market value of the scheme’s investments minus its liabilities, divided by the number of units held by investors. NAV shows what one unit of the fund is worth on a given day, and it is the price at which you buy or redeem units.
What does NAV represent?
A mutual fund pools money from many investors and buys a portfolio of securities such as shares and bonds. The Net Asset Value tells you the current worth of one unit of that pooled portfolio. When the value of the underlying investments rises, the NAV rises; when they fall, the NAV falls. In this sense, NAV is a mirror of how the fund’s holdings are performing.
Because a scheme’s investments are priced by the market every trading day, its NAV changes daily. Under rules set by the Securities and Exchange Board of India (SEBI), mutual funds must calculate and disclose NAV each business day so investors always know the current value of their holdings.
When a new scheme is launched through a new fund offer (NFO), units are usually offered at a face value such as ₹10. From that point on, the NAV moves purely with the market value of what the fund buys. So a scheme with a NAV of ₹10 is not “new and cheap” in any meaningful sense — it may simply have launched recently, while a scheme with a NAV of ₹500 may have grown steadily for years.
How is NAV calculated?
The formula is straightforward:
NAV per unit = (Total market value of assets − Liabilities) ÷ Total number of units outstanding
Consider a simple example used in investor-education material. If the market value of a scheme’s securities is ₹200 lakh, and the fund has issued 10 lakh units to investors, then the NAV per unit is ₹200 lakh ÷ 10 lakh units = ₹20. If the value of those securities grows to ₹220 lakh with the same number of units, the NAV rises to ₹22.
Liabilities and expenses — including the fund’s management costs — are deducted before arriving at the NAV, which is why the figure reflects returns net of certain charges. The “assets” in the formula include the market value of all the shares, bonds and other securities the scheme holds, plus any cash and accrued income, valued at the day’s closing prices.
When is NAV updated?
NAV is not a live, second-by-second price like a share on the stock exchange. Instead, mutual funds strike a single NAV for each scheme at the end of the trading day, once markets close and the day’s closing prices are known. The Association of Mutual Funds in India (AMFI) requires the NAV of all schemes to be published on its website and on the fund houses’ websites, and these are typically updated by 11 p.m. each business day.
This end-of-day pricing has a practical consequence: the NAV you get depends on the applicable cut-off time for your transaction, not on the price at the exact moment you place your order.
Does a low NAV mean a fund is cheap?
This is one of the most common misconceptions among new investors. A lower NAV does not make a fund cheaper or a better buy, and a higher NAV does not make it expensive. The NAV simply reflects the per-unit value of the portfolio; what matters for your returns is the percentage by which the NAV grows, not its absolute level.
To see why, compare two funds below. Both deliver the same 10 per cent return, so your gain is identical regardless of the starting NAV.
| Fund A | Fund B | |
|---|---|---|
| Amount invested | ₹10,000 | ₹10,000 |
| NAV per unit | ₹10 | ₹100 |
| Units allotted | 1,000 | 100 |
| Return over period | 10% | 10% |
| Value after growth | ₹11,000 | ₹11,000 |
The lesson: choose a fund on the merits of its strategy, costs and track record, not on whether its NAV happens to be a small or large number.
NAV vs share price — how do they differ?
| Feature | Mutual fund NAV | Share price |
|---|---|---|
| How it is set | Calculated once daily from portfolio value | Changes continuously with supply and demand |
| What it reflects | Net value of the fund’s holdings per unit | Market’s live valuation of one company |
| Intraday movement | No — a single end-of-day price | Yes — moves throughout trading hours |
Unlike a share price, which is driven by moment-to-moment trading, a scheme’s NAV is an accounting value struck after the market closes.
How does NAV affect your returns?
Your returns come from the change in NAV between the time you invest and the time you redeem, adjusted for any dividends or distributions. If you invest through a systematic investment plan (SIP), you buy units at different NAVs over time, which averages your purchase cost — a benefit often described as rupee-cost averaging. Tracking NAV over months and years helps you gauge how your investment is performing, but short-term movements are normal and should be viewed in the context of your long-term goals.
How does the expense ratio relate to NAV?
The NAV you see each day is already net of the scheme’s recurring costs, which are captured in its expense ratio — the annual charge for managing the fund, expressed as a percentage of assets. Because these costs are deducted before the daily NAV is struck, a lower expense ratio leaves more of the returns with investors over time. This is one reason two schemes tracking similar portfolios can show slightly different NAVs and returns.
It also explains why the same scheme has different NAVs under its regular and direct plans. A direct plan, bought without a distributor commission, carries a lower expense ratio, so its NAV typically grows a little faster than the regular plan of the same scheme.
How do different plan options change the NAV?
| Option | What it means | Effect on NAV |
|---|---|---|
| Growth | Profits are retained and reinvested in the scheme | NAV rises over time as gains accumulate |
| IDCW (payout) | Income is distributed to investors periodically | NAV falls by the amount distributed on the payout date |
| Direct plan | Bought without a distributor commission | Lower costs, so NAV usually grows faster |
| Regular plan | Bought through a distributor | Higher costs, so NAV usually grows a little slower |
Under an Income Distribution cum Capital Withdrawal (IDCW) option, the NAV drops when income is paid out, because that money leaves the scheme. This is expected and does not mean the fund has performed badly.
Common mistakes investors make with NAV
Two errors are especially common. The first, as noted above, is treating a low NAV as a bargain; the absolute figure says nothing about future returns. The second is judging a fund on a single day’s NAV movement. Because NAV reflects the market value of the underlying holdings, it will move up and down daily, and reacting to short-term swings can undermine a long-term plan.
A more useful habit is to compare a scheme’s returns over relevant periods against its benchmark and peers, and to weigh its strategy, risk level and costs — the factors that actually drive long-term outcomes.
This article is for general educational purposes and is not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully and consult a SEBI-registered adviser where needed.