What Is NAV? Understanding Mutual Fund Net Asset Value

“Should I invest in a fund with a lower NAV because it’s cheaper?” This is one of the most common questions — and misconceptions — among new mutual fund investors. Let’s clear it up.

What Is NAV?

Net Asset Value (NAV) is the per-unit market value of a mutual fund scheme. It represents the price at which you buy or sell units of a mutual fund.

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

Example

A mutual fund holds:

• Stocks and bonds worth ₹500 crore
• Cash and receivables worth ₹10 crore
• Total liabilities (expenses, fees): ₹2 crore
• Outstanding units: 5 crore

NAV = (500 + 10 - 2) ÷ 5 = ₹508 ÷ 5 = ₹101.60 per unit

How Is NAV Calculated?

SEBI mandates that AMCs (Asset Management Companies) must calculate and publish NAV at the end of every business day. Here’s the process:

1. Market close (3:30 PM) — The value of all securities in the portfolio is marked to market
2. Add receivables — Dividends, interest income accrued
3. Subtract liabilities — Management fees, administration costs, brokerage paid
4. Divide by total units — Gives the per-unit NAV
5. Published by 11 PM — Available on AMC websites and AMFI (amfiindia.com)

The Biggest NAV Myth: “Low NAV = Cheap Fund”

This is completely wrong. NAV is not like a stock price. Here’s why:

Scenario: Two funds, same corpus

Fund	Total AUM	Units	NAV
Fund A	₹1,000 Cr	10 Cr	₹100
Fund B	₹1,000 Cr	50 Cr	₹20

If both funds grow by 10%, here’s what happens:

Fund	New AUM	New NAV	Your Return
Fund A	₹1,100 Cr	₹110	10%
Fund B	₹1,100 Cr	₹22	10%

Your return is identical — 10% in both cases. The absolute NAV number doesn’t matter; what matters is the percentage change.

Why Do People Get Confused?

• Stock market thinking — With stocks, a lower price might mean undervaluation. With mutual funds, NAV is simply a function of how many units have been issued
• NFO marketing — New Fund Offers (NFOs) launch at ₹10 NAV, making people think they’re getting a “discount.” They’re not — the fund has no track record at that point
• Psychological comfort — Getting 100 units at ₹10 NAV feels better than 10 units at ₹100 NAV, but the invested amount and returns are the same

What Should You Actually Look At?

Instead of NAV, focus on these metrics:

1. Rolling returns — 1-year, 3-year, and 5-year rolling returns show consistency
2. Expense ratio — Lower is better. Direct plans have lower expense ratios than regular plans
3. Benchmark comparison — Is the fund beating its benchmark index?
4. Fund manager track record — Experience and performance across market cycles
5. Portfolio composition — Top holdings, sector allocation, and concentration risk
6. AUM size — Very large AUM can be a drag for small/mid-cap funds

Direct vs Regular Plans: The NAV Connection

Every mutual fund has two NAV values:

• Direct Plan NAV — Higher (because no distributor commission is charged)
• Regular Plan NAV — Lower (distributor commission deducted from returns)

The difference in expense ratio (0.5-1.0% annually) compounds significantly over time. Always invest through direct plans via platforms like AMC websites, MF Central, Kuvera, or Groww.

Key Takeaways

• NAV is simply the per-unit price of a mutual fund, calculated daily
• A lower NAV does not mean a cheaper or better fund
• Returns are measured in percentage terms, not absolute NAV change
• Focus on returns, expense ratio, and consistency — not NAV
• Always prefer direct plans over regular plans for better returns