What is NAV in Mutual Funds? A Beginner’s Guide
If you’re new to mutual fund investing, you’ve probably come across the term NAV or Net Asset Value. Many beginners believe that a mutual fund with a lower NAV is cheaper or offers better returns than one with a higher NAV. However, this is one of the biggest misconceptions in mutual fund investing.
In reality, NAV is simply the per-unit value of a mutual fund. It helps determine the price at which you buy or sell mutual fund units.
Let’s understand NAV in simple terms.
What is NAV?
NAV (Net Asset Value) is the market value of one unit of a mutual fund. It is calculated by subtracting the fund’s liabilities from its total assets and then dividing the result by the total number of units outstanding.
In simple words, NAV tells you how much one unit of a mutual fund is worth on a particular day.
How is NAV Calculated?
The formula for NAV is:
Where:
- Total Assets = Value of all investments, cash, and other assets held by the fund.
- Total Liabilities = Expenses, management fees, and other obligations.
- Outstanding Units = Total mutual fund units held by investors.
The NAV is calculated at the end of every trading day after the market closes.
Example of NAV Calculation
Suppose a mutual fund has:
- Total Assets = ₹500 crore
- Total Liabilities = ₹10 crore
- Outstanding Units = 49 crore
Then:
NAV = (₹500 crore − ₹10 crore) ÷ 49 crore = ₹10 per unit
If you invest ₹10,000, you will receive:
₹10,000 ÷ ₹10 = 1,000 units
Why Does NAV Change Every Day?
NAV changes because the value of the securities held by the mutual fund changes daily.
Some factors that affect NAV include:
- Stock market movements
- Bond price changes
- Dividend income
- Interest received
- Fund expenses
- Cash inflows and outflows
Since markets fluctuate every day, the NAV also changes accordingly.
Does a Lower NAV Mean a Better Fund?
No.
This is one of the most common myths among new investors.
For example:
- Fund A NAV = ₹25
- Fund B NAV = ₹250
A lower NAV does not mean the fund is cheaper or has greater growth potential.
What matters is:
- Quality of the portfolio
- Fund manager’s investment strategy
- Long-term performance
- Expense ratio
- Risk-adjusted returns
The NAV only reflects the value per unit—it does not indicate whether a fund is good or bad.
How NAV Affects Your Investment
When you invest in a mutual fund:
- Your investment amount remains the same.
- The number of units you receive depends on the NAV.
Example
Investment Amount = ₹20,000
If NAV = ₹20
Units allotted = 1,000
If NAV = ₹40
Units allotted = 500
In both cases, your investment value remains ₹20,000.
What Increases NAV?
NAV generally increases when:
- The value of the fund’s investments rises.
- Companies in the portfolio perform well.
- Market conditions improve.
- Interest or dividend income increases.
What Decreases NAV?
NAV may decrease when:
- Stock prices fall.
- Bond prices decline.
- Market corrections occur.
- Portfolio companies underperform.
Short-term declines are normal in equity mutual funds.
NAV vs Share Price
Many beginners compare NAV with a stock’s share price, but they are different.
| Feature | Mutual Fund NAV | Stock Price |
|---|---|---|
| Represents | Value per mutual fund unit | Price of one company share |
| Determined By | Fund assets and liabilities | Market demand and supply |
| Calculated | Once every trading day | Continuously during market hours |
| Investment | Diversified portfolio | Single company |
Does NAV Matter for SIP Investors?
For SIP investors, daily NAV changes are not something to worry about.
When markets fall:
- NAV decreases.
- Your SIP buys more units.
When markets rise:
- NAV increases.
- Your SIP buys fewer units.
This process is known as rupee cost averaging, which helps reduce the impact of market volatility over time.
Common Myths About NAV
Myth 1: Lower NAV Means Better Returns
False.
Future returns depend on the fund’s portfolio and performance, not on its NAV.
Myth 2: High NAV Makes a Fund Expensive
False.
A high NAV simply means the fund’s value has grown over time.
Myth 3: NAV Works Like Stock Prices
False.
Stock prices depend on supply and demand, while NAV is calculated from the value of the fund’s assets and liabilities.
Tips for Mutual Fund Investors
Instead of focusing only on NAV, consider:
- Long-term performance
- Fund manager’s experience
- Expense ratio
- Investment objective
- Risk level
- Portfolio quality
- Consistency across market cycles
These factors are much more important when choosing a mutual fund.
Frequently Asked Questions (FAQs)
Is a mutual fund with a ₹10 NAV better than one with a ₹100 NAV?
No. NAV alone does not indicate the quality or future return potential of a mutual fund.
Is NAV updated daily?
Yes. Mutual fund NAVs are calculated and published after each trading day based on the closing value of the fund’s portfolio.
Should I invest only in low-NAV funds?
No. Focus on the fund’s investment strategy, historical consistency, risk profile, and how well it aligns with your financial goals.
Does NAV affect SIP returns?
No. SIP returns depend on the long-term performance of the mutual fund. Regular investments benefit from rupee cost averaging regardless of whether the NAV is high or low.
Final Thoughts
NAV is an important concept in mutual fund investing, but it should never be the only factor when choosing a fund. It simply represents the value of one unit of a mutual fund and changes daily based on the value of the fund’s underlying investments.
Whether a fund’s NAV is ₹20 or ₹200, what truly matters is the quality of the portfolio, the fund manager’s investment approach, consistency of performance, expense ratio, and your long-term financial goals.
For long-term investors, especially those investing through SIPs, staying focused on disciplined investing and selecting quality mutual funds is far more important than worrying about daily NAV movements.
Query Solved for What is NAV in Mutual Funds
What is a good NAV for a mutual fund
What is nav in mutual funds formula
What is nav in mutual funds example
What is NAV in SIP
How mutual fund NAV is calculated daily
Nav in mutual fund full form
How to calculate NAV of mutual fund with example India
NAV in Mutual fund should be high or low