What is Net Asset Value (NAV) in Mutual Funds?

NAV, or Net Asset Value, is the per-unit value of a mutual fund scheme. In simple words, it is the price at which mutual fund units are bought or redeemed.

For example, if a mutual fund’s NAV is ₹50 and you invest ₹10,000, you will get 200 units. If the NAV is ₹100, you will get 100 units. In both cases, your investment amount is still ₹10,000. The number of units changes, but your investment value does not become bigger or smaller just because the NAV is low or high.

In this blog, we will understand what NAV means, how it is calculated, why it changes, how it affects your mutual fund units, and why you should not choose a mutual fund only because its NAV looks low.

What is NAV in Mutual Funds?

NAV stands for Net Asset Value. It shows the value of one unit of a mutual fund scheme.

A mutual fund collects money from many investors and invests it in assets such as stocks, bonds, treasury bills, commercial papers, or cash equivalents, depending on the scheme type. The value of these investments changes over time. After deducting the scheme’s liabilities and expenses, the remaining value is divided by the total number of units. This gives the NAV per unit.

Let’s say a mutual fund has net assets worth ₹10 crore and has issued 20 lakh units. In this case, the NAV will be ₹50 per unit. This means each unit of the fund is currently worth ₹50.

NAV Formula Explained

The formula for NAV is: 

NAV = (Total Assets - Total Liabilities) / Total Units Outstanding. 

Here is what each part means:

The formula may look technical, but the idea is simple. NAV tells you the net value of the fund per unit. If the value of the fund’s assets goes up and liabilities stay similar, NAV may rise. If the value of the assets falls, NAV may fall.

How is NAV Calculated? Step-by-Step Example

Let’s understand NAV calculation with a simple example. Suppose a mutual fund scheme has the following values:

Now apply the NAV formula:

• NAV = ₹50 crore / 1 crore units
• NAV = ₹50 per unit
• So, the NAV of the mutual fund is ₹50.

Now suppose you invest ₹10,000 in this scheme.

• Units allotted = Investment Amount / Applicable NAV
• Units allotted = ₹10,000 / ₹50
• Units allotted = 200 units

This is why NAV matters when you invest. It decides how many units you receive.

Why Does NAV Change Every Day?

NAV changes because the value of the mutual fund’s investments changes. If an equity mutual fund holds shares, its NAV can rise when the value of those shares goes up. If those shares fall, the NAV can also fall.

If it is a debt mutual fund, the NAV can change because of interest income, bond prices, interest rate changes, and credit-related factors.

The fund’s expenses also affect NAV. These expenses are adjusted before the final NAV is declared. This is why the NAV you see is already after accounting for the scheme’s regular expenses. So, NAV is not fixed. It moves based on the value of the fund’s portfolio.

Is a Low NAV Better Than a High NAV?

No, a low NAV is not automatically better than a high NAV. This is one of the biggest beginner mistakes in mutual funds. Many people think a fund with ₹10 NAV is cheaper than a fund with ₹100 NAV. But mutual funds do not work like regular shopping discounts.

Let’s say you invest ₹10,000 in two funds.

In Fund A, you get more units. In Fund B, you get fewer units. But your investment value is the same in both cases.

Now suppose both funds grow by 10%. Your ₹10,000 becomes ₹11,000 in both funds.

So, getting more units does not mean you are getting a better deal. What matters is how the fund performs after you invest.

This is also why a New Fund Offer, or NFO, at ₹10 NAV is not automatically cheap. An NFO is a new mutual fund scheme launched by an AMC. Since it is new, it usually starts at ₹10 NAV. But that does not make it better than an older fund with a higher NAV.

Before choosing a fund, look at the scheme category, investment objective, risk level, expense ratio, fund manager’s approach, and whether it suits your financial goal.

How NAV Decides Units When You Invest or Redeem

NAV directly affects how many units you get when you invest and how much money you receive when you redeem. When you invest, the applicable NAV decides your units.

• Units allotted = Investment Amount / Applicable NAV
• For example, if you invest ₹10,000 and the applicable NAV is ₹50, you get 200 units.
• When you redeem, NAV decides your redemption value.
• Redemption Amount = Units Redeemed x Applicable NAV
• For example, if you redeem 200 units and the applicable NAV is ₹60, your redemption value will be: 200 x ₹60 = ₹12,000

But the final amount credited to your bank account may be slightly different if an exit load or other applicable deduction is charged. Exit load is a fee some mutual funds charge when you redeem units before a certain period.

When is NAV Declared?

Mutual fund NAV is declared after the fund house values the scheme’s investments for the day. For most domestic mutual fund schemes, NAV is disclosed by 11:00 PM on the same business day.

Some schemes may follow a different timeline. For example, fund of funds and schemes with overseas investments may declare NAV on the next business day because their underlying investments may be priced in different markets.

Here is a simple view:

The exact NAV deadline for overseas funds and FoFs can depend on the scheme type, so it is better to check the NAV shown on your investing app or the fund house website.

Which Day’s NAV Applies to Your Purchase or SIP?

NAV declaration time and applicable NAV are not the same. NAV declaration time means when the NAV is published. Applicable NAV means the NAV used for your transaction.

For most equity, debt, and hybrid funds, if you place a purchase order before 3:00 PM and the money reaches the fund house within the required time, you usually get the same business day’s closing NAV.

But if the money reaches late, you may get the NAV of the next eligible business day. This can happen even if you placed the order before 3:00 PM.

The same rule applies to SIPs. The SIP date alone does not decide the NAV. The NAV depends on when the SIP amount is debited and made available to the fund house.

Which NAV Applies When You Redeem?

Redemption means selling your mutual fund units back to the fund house. For most equity, debt, and hybrid funds, if you place a redemption request before 3:00 PM, the same business day’s closing NAV usually applies. If you place it after 3:00 PM, the next business day’s NAV usually applies.

Remember, applicable NAV and payout time are different. Applicable NAV decides the price used for your redemption. Payout time decides when the money reaches your bank account. Different fund categories can have different payout timelines.

How to Track Historical NAV

You can track mutual fund NAV on apps like INDmoney or through AMFI’s NAV tools. While checking NAV, make sure you select the specific scheme, plan, and option. This is important because the same mutual fund scheme can have different versions, such as:

The NAV of a direct plan and a regular plan can be different. The NAV of growth and IDCW options can also differ.

So, when you search for a fund’s NAV, do not look only at the scheme name. Check the exact plan and option you have invested in or want to invest in.

Historical NAV can help you see how the fund’s value has moved over time. But do not choose a fund only because its NAV has gone up. Also look at returns, risk, benchmark performance, expense ratio, fund category, and whether the fund suits your goal.