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What Is NAV? Understanding Mutual Fund Net Asset Value
Learn what NAV means, how it's calculated daily, why a high NAV doesn't mean an expensive fund, and common myths about mutual fund NAV.
“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:
- Market close (3:30 PM) — The value of all securities in the portfolio is marked to market
- Add receivables — Dividends, interest income accrued
- Subtract liabilities — Management fees, administration costs, brokerage paid
- Divide by total units — Gives the per-unit NAV
- 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:
- Rolling returns — 1-year, 3-year, and 5-year rolling returns show consistency
- Expense ratio — Lower is better. Direct plans have lower expense ratios than regular plans
- Benchmark comparison — Is the fund beating its benchmark index?
- Fund manager track record — Experience and performance across market cycles
- Portfolio composition — Top holdings, sector allocation, and concentration risk
- 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
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