What is NAV in Mutual Fund?
If you have ever looked at a mutual fund, you will have come across the term NAV. It appears next to every scheme and changes each day. Knowing NAV makes it easier for anyone investing in mutual funds to know precisely what they are paying for and the value of their investment. This blog describes what NAV is, how it is computed, and how investing through a SIP operates.
What is NAV?
The NAV full form is Net Asset Value. It is the per-unit price of a mutual fund scheme. NAV is simple, it’s the price at which you purchase or sell one unit of your mutual fund on some specific day.
Investing in a mutual fund allows you to buy a portfolio of stocks, bonds, and other assets by pooling your money with that of other investors. The value of the portfolio is divided by the total number of units owned by all investors to determine NAV. The NAV changes in tandem with changes in the underlying assets’ value.
The NAV of a mutual fund is determined once at the conclusion of each business day, following the closing of the markets, in contrast to a share price, which fluctuates constantly throughout market hours.
How is NAV Calculated?
NAV is worked out using a straightforward formula:
NAV = (Total assets − Total liabilities) ÷ Total number of units outstanding
Here, total assets means the market value of everything the fund holds, plus any cash. Liabilities include the fund’s expenses and other amounts owed. The result is divided by the total number of units held by all investors to arrive at the value of a single unit.
Consider a straightforward scenario. Assume a mutual fund has ₹1 crore in liabilities and ₹50 crore in cash and investments. It has ₹49 crore in net assets. If investors together own two crore units, then:
NAV = ₹49 crore ÷ 2 crore units = ₹24.50 per unit
So each unit of the fund is worth ₹24.50 on that day. Fund houses calculate and publish the NAV of every scheme at the end of each business day.
Also Read: What are Mutual Funds?
How does NAV Work When You Invest?
The NAV on the day your transaction is completed determines how many units you receive when you invest a specific amount in a mutual fund. For instance, you will receive 100 units if you invest ₹10,000 in a program with a NAV of ₹100. The same ₹10,000 would buy you 200 units if the NAV were ₹50.
The number of units you own multiplied by the current NAV represents your investment’s worth at any given time. Your 100 units are now worth ₹11,000 if the NAV in the ₹100 example above increases to ₹110. Therefore, rather than the NAV being high or low at the time of purchase, your returns are based on the change in NAV over time.
What is NAV in a SIP?
A systematic investment plan or people used to call it SIP. This allows you to invest a specified amount on a regular basis, often monthly rather than all at once in a year. Because the NAV varies from one installment to the next, you pay different rates for each unit.
When the NAV is lower, your fixed amount buys more units. On the other hand, when it is higher, it buys fewer. Over time, this averages out the price you pay per unit, an effect known as rupee cost averaging. It is one of the reasons SIPs are popular, as they remove the need to time the market and spread your purchases across different NAV levels.
A Common Misconception About NAV
Many new investors assume that a fund with a lower NAV is “cheaper” or better value than one with a higher NAV. This is not correct. The NAV is only the current per-unit price, plus, it says nothing about how good or bad a fund is.
What matters is how much the NAV grows over time. The reason, it reflects the performance of the fund’s underlying investments. Two funds holding similar portfolios will give you similar returns regardless of whether one has a NAV of ₹20 and the other ₹200, because a lower NAV simply means you hold more units, and a higher NAV means you hold fewer. The percentage change is what affects your returns, not the starting number.
What Affects a Fund’s NAV?
A NAV changes daily, and a few things drive that movement. The market value of the fund’s assets is the most important factor: when the shares or bonds a fund holds increase in value, the NAV rises, and when they fall, the NAV decreases. The fund’s expenditures, levied through the expense ratio, are subtracted, gradually reducing the NAV over time.
If a fund distributes a dividend or payout, its NAV falls by roughly that amount, since the money leaves the fund. Large inflows or outflows of money from investors change the total assets and the number of units, though they do not by themselves change the per-unit value. Understanding this helps explain why a fund’s NAV can move even on a day when you have done nothing.
Does the Timing of Your Investment Matter?
Yes, to an extent. Because NAV is declared once a day, the NAV you receive depends on when your investment is processed and when the money reaches the fund. SEBI sets cut-off timings for this purpose. Broadly, if your application and funds are received before the cut-off time on a business day, you are usually allotted that day’s NAV; if they arrive after the cut-off or on a holiday, you get the next business day’s NAV.
The exact rules vary by fund type, so it is worth knowing them if the timing of a large lump-sum investment matters to you. For a regular SIP, this is less of a concern, as instalments are processed on set dates automatically.
Also Read: What is a SIP? How to Invest in Mutual Funds via SIP?
NAV vs Market Price
It helps to know how NAV differs from the market price of a listed security. The price of a share or exchange-traded fund (ETF), which is traded on the stock exchange, fluctuates throughout the day according to supply and demand.
This is not how mutual funds are traded on the exchange; instead, you deal directly with the fund house at the day’s NAV. This is why NAV is declared once daily rather than changing minute by minute, and why the time at which you place your request can affect which day’s NAV you receive.
Final Thoughts
For a mutual fund investor, NAV is the number that connects the money you put into the units you own and, later, to what your investment is worth. It tells you the price at which units are bought and sold, and tracking its growth over time shows how your investment is performing.
It is important, though, to read NAV correctly: use it to value your holding and to measure percentage growth, not to judge whether one fund is “cheaper” than another. Combined with the fund’s track record, expense ratio and the quality of its portfolio, NAV is a useful piece of the picture rather than the whole of it.
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Frequently Asked Questions
NAV (Net Asset Value) is the price of one unit of a mutual fund scheme. It is calculated as: NAV = (Total assets − Total liabilities) ÷ Total number of units outstanding. Fund houses work this out and publish it at the end of every business day.
No. NAV only tells you the current price of one unit, not whether a fund is good or bad. A fund with NAV of ₹20 and one with NAV of ₹200 can give similar returns if their portfolios perform the same way. A lower NAV simply means you get more units for your money, not that the fund is cheaper or better value.
No. A stock’s price changes throughout the trading day based on demand and supply on the exchange. A mutual fund’s NAV is declared only once, at the end of each business day, and you buy or sell units directly with the fund house at that NAV.
The main driver is the market value of the fund’s holdings. When the stocks or bonds it holds rise in value, NAV rises, and when they fall, NAV falls. The fund’s expense ratio is deducted from NAV over time, and NAV drops by roughly the payout amount when a fund distributes a dividend.
The NAV on the day your transaction is processed decides how many units you get. For example, ₹10,000 invested in a fund with NAV of ₹100 gets you 100 units, while the same amount at NAV ₹50 gets you 200 units. The value of your investment later is simply your units multiplied by that day’s NAV.
Yes. SEBI sets a cut-off time for every fund. If your application and money reach the fund before the cut-off on a business day, you usually get that day’s NAV. If they arrive after the cut-off or on a holiday, you get the next business day’s NAV. For a SIP, you don’t need to track this, as instalments are processed automatically on fixed dates.
Yes, but not in the way most people think. Since a SIP invests a fixed amount regularly, a lower NAV buys more units and a higher NAV buys fewer, in each instalment. Over time this averages out your purchase cost, an effect called rupee cost averaging, so the exact NAV on any one day matters less than it would for a lump-sum investment.
You can check the latest NAV on the fund house’s (AMC) website, on registrar websites such as CAMS or KFin Technologies, on the AMFI website, or through your mutual fund investing platform. NAV is updated once a day, usually after markets close.