Investor Corner/The asset classes/Mutual Fund Core Concepts
2.3.6 Net Asset Value (NAV)
Net Asset Value is the per-unit market value of a fund's assets minus its liabilities. You buy and sell mutual fund units at NAV, subject to the fund's cut-off timing rules.
How the number is calculated
At the end of each business day, a fund adds up the market value of everything it holds, subtracts any liabilities, and divides by the total number of units outstanding. That result is the NAV, and it is what determines the price at which new units are bought or existing units are redeemed for that day.
NAV is calculated by taking the total market value of all securities held by the fund, adding any accrued income, subtracting all liabilities and expenses, and dividing by the total number of outstanding units. The calculation is done at the end of each business day using closing market prices. For example, if a fund holds securities worth ₹10,000 crore, has ₹50 crore in liabilities, and has 500 crore units outstanding, the NAV is (₹10,000 crore - ₹50 crore) / 500 crore units = ₹19.90 per unit.
A number that changes with the underlying portfolio
NAV rises and falls in direct proportion to the market value of the securities the fund holds. A higher NAV does not mean a fund is more expensive or a poorer buy compared to a fund with a lower NAV; it simply reflects how the fund's underlying investments have performed since it was launched. Two funds holding an identical portfolio, launched at different NAVs, would still deliver the same percentage return.
A common misconception is that a fund with a lower NAV is "cheaper" than one with a higher NAV. This is incorrect. NAV reflects the accumulated value of the fund since inception, not its expensiveness or cheapness. A fund with a NAV of ₹15 is not a better buy than one with a NAV of ₹500; both will deliver the same percentage return on the same underlying portfolio. What matters is the portfolio's expected return and risk, not the NAV level. Buying 100 units at ₹15 or 3 units at ₹500 exposes ₹1,500 to the same market forces either way.
New Fund Offers (NFOs) are typically launched at a NAV of ₹10, which creates the illusion of cheapness compared to an existing fund with a NAV of ₹200. In reality, both invest at current market prices. The ₹10 NAV of an NFO offers no advantage over the ₹200 NAV of an established fund; if anything, the established fund has a verifiable track record that the NFO lacks.
Why NAV alone tells you very little
A common misconception is treating a lower NAV as cheaper and therefore more room to grow, similar to how a lower stock price is sometimes mistakenly seen as more attractive. What actually matters for future performance is the quality and prospects of the underlying holdings, not the NAV figure itself, which is really just an accounting artefact of when the fund launched.
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NAV determines the price at which you buy and redeem units, so the applicable NAV depends on when your transaction is processed. SEBI's cut-off time rules specify that purchase requests received before 3:00 PM (for equity and hybrid funds) or 1:30 PM (for debt and liquid funds) are processed at that day's closing NAV; requests received after the cut-off are processed at the next business day's NAV. For large lump-sum investments, this timing can matter. For SIPs, the NAV applicable is the one on the SIP date, and the slight daily variation averages out over months and years.