If you have ever checked a mutual fund, you have probably seen a number called NAV. One fund may have an NAV of ₹20, while another may show ₹200.
This often creates confusion. Is the fund with the lower NAV cheaper? Does a higher NAV mean the mutual fund has already grown too much?
The answer is not that simple. NAV is basically the per-unit value of a mutual fund scheme. SEBI describes it as the per-unit market value of the securities held by a mutual fund after accounting for its liabilities.
What Is NAV in Mutual Funds?
NAV stands for Net Asset Value.
In simple words, NAV tells you the value of one unit of a mutual fund scheme.
When you invest in a mutual fund, the fund issues units based on the applicable NAV. AMFI explains that mutual funds issue units against the invested amount at the prevailing NAV.
For example, if the applicable NAV is ₹50, your investment amount is used to buy units at that NAV, subject to the scheme and transaction rules.
How Is NAV Calculated?
The basic NAV formula is:
NAV = (Total Assets − Total Liabilities) ÷ Total Units Outstanding
A mutual fund may hold shares, bonds, cash and other permitted assets. From the total value of these assets, the scheme’s liabilities are deducted.
The remaining value is divided by the total number of outstanding units.
The result is the NAV per unit.
Simple NAV Example
Imagine a mutual fund has total assets worth ₹10 crore.
Its total liabilities are ₹50 lakh.
This means the net assets are worth ₹9.5 crore.
Now suppose the scheme has 10 lakh units outstanding.
The NAV would be:
₹9.5 crore ÷ 10 lakh units = ₹95 per unit
So, the NAV of the mutual fund would be ₹95.
This is only a simple example to explain the calculation.
Why Does NAV Change?
NAV changes because the value of investments held by the mutual fund can change.
For example, if a mutual fund holds shares and their market value rises, the value of the fund’s assets may increase. This can affect the NAV.
Similarly, if the value of securities held by the scheme falls, the NAV may also decline.
AMFI notes that changes in the price or value of securities held by a mutual fund can cause the value of an investment to rise or fall.
Does a Lower NAV Mean a Mutual Fund Is Cheaper?
No. This is one of the most common NAV myths.
Suppose Fund A has an NAV of ₹10 and Fund B has an NAV of ₹100.
It does not automatically mean Fund A is cheaper or a better investment.
AMFI specifically identifies the belief that a mutual fund with an NAV of ₹10 is better than one with an NAV of ₹25 as a myth.
A lower NAV simply means the per-unit value is lower. It does not tell you whether the fund is undervalued or likely to give higher returns.
NAV vs Mutual Fund Returns
NAV and mutual fund returns are related, but they are not the same thing.
NAV shows the per-unit value of a mutual fund at a particular point in time.
Returns measure how the value of an investment has changed over a period.
For example, suppose a fund’s NAV moves from ₹100 to ₹110. Ignoring other factors for this simple example, the increase in NAV is 10%.
When comparing mutual funds, investors should look at performance over relevant periods rather than simply comparing current NAV figures.
Does NAV Matter When Choosing a Mutual Fund?
NAV is important because mutual fund unit transactions are linked to the applicable NAV.
However, the NAV number alone should not be used to decide whether a mutual fund is suitable.
Investors should also understand factors such as:
Investment objective
Risk level
Fund category
Investment horizon
Expense ratio
Portfolio and scheme strategy
SEBI requires mutual fund schemes to provide important scheme information so investors can make informed decisions.
When Is NAV Updated?
According to SEBI’s mutual fund investor FAQs, NAV is determined daily and mutual funds are required to disclose it daily.
SEBI’s investor education material also states that the accounting value of each mutual fund unit, known as NAV, must be published daily.
Investors can check mutual fund NAV information through the fund house and AMFI’s NAV resources.
Common NAV Myths Beginners Should Avoid
Myth 1: A Lower NAV Means a Cheaper Mutual Fund
Incorrect. A lower NAV does not automatically make a mutual fund cheaper or better.
Myth 2: A Higher NAV Means the Fund Cannot Grow Further
NAV alone does not determine the future growth potential of a mutual fund.
Myth 3: ₹10 NAV Funds Are Better for Beginners
The starting NAV or current NAV should not be the only reason for choosing a mutual fund.
Myth 4: NAV Changes Like a Stock Price Throughout the Trading Day
Mutual fund NAV is determined and disclosed daily under the applicable regulatory framework. It is not generally quoted continuously like a stock market price.
FAQs
What is NAV in mutual funds?
NAV, or Net Asset Value, is the per-unit value of a mutual fund scheme after accounting for its assets and liabilities.
How is NAV calculated?
NAV is calculated by subtracting the scheme’s liabilities from its total assets and dividing the result by the number of outstanding units.
Is a lower NAV better?
No. A lower NAV does not automatically mean a mutual fund is cheaper or better.
Does NAV affect mutual fund returns?
Changes in NAV reflect changes in the per-unit value of the scheme. Returns, however, measure investment performance over a specific period.
How often is mutual fund NAV updated?
Mutual fund NAV is determined and disclosed daily as required under the applicable regulatory framework.
Should I choose a mutual fund based on NAV?
NAV alone should not be the basis for selecting a mutual fund. The scheme’s objective, risk, category and other relevant factors should also be considered.
