What is NAV in Mutual Funds?

NAV full form is Net Asset Value. It's the per-unit value of a mutual fund scheme on any given day.

Think of it like this: a mutual fund owns stocks, bonds, cash, and other assets. Those holdings have a total market value. Subtract the fund's liabilities (expenses, fees), and you get the net asset value of the entire fund. Divide that by the number of units outstanding, and you get the NAV per unit.

Why NAV is not the same as a stock price:
Stock prices change constantly during market hours based on demand and supply. NAV is calculated once per day, after markets close, based on the closing prices of the fund's holdings.

You're not buying or selling mutual fund units on an exchange. You're buying directly from the fund house at the day's NAV. No intraday trading, no bid-ask spread.

The NAV calculation formula is straightforward:

NAV = (Total Assets − Total Liabilities) ÷ Outstanding Units

What counts as assets:

• Market value of stocks, bonds, and securities held by the fund

• Cash and equivalents

• Accrued interest and dividends

What counts as liabilities:

• Management fees and operating expenses

• Any outstanding payments or obligations

Why NAV is calculated once daily:
Markets close at 3:30 PM. Fund houses calculate NAV using the closing prices of all holdings. Regulations require all mutual funds to publish their NAV daily by day end after markets close.

Example (NAV calculation example):
A fund holds assets worth ₹1,000 crore. Liabilities are ₹10 crore. Outstanding units: 10 crore. NAV = (₹1,000 crore − ₹10 crore) ÷ 10 crore = ₹99 per unit.

The mutual fund NAV changes because the market value of the fund's holdings changes, which are the primary factors affecting NAV.

Impact of market movements on fund holdings: If the stocks in an equity fund rally, the fund's total assets increase. NAV goes up. If markets fall, assets shrink. NAV drops.

Difference in NAV behavior for equity vs debt funds:

• NAV in equity mutual funds can swing approximately 1 to 3% daily during volatile periods. Equity prices move fast.

• NAV in debt mutual funds change slowly - maybe 0.01 to 0.05% daily - because bond prices are more stable.

Why daily NAV fluctuation is normal:
Markets fluctuate. A fund's NAV reflects those movements. If you're investing for 10 years, a 2% one day drop is noise, not a crisis.

This is where most mistakes happen.

Low NAV Does Not Mean Cheaper or Better

A fund with a NAV of ₹20 isn't “cheaper” than one with NAV of ₹200. You're not buying a product with a fixed price tag. You're buying a slice of a portfolio.

If you invest ₹10,000:

• Fund A (NAV ₹20): You get 500 units

• Fund B (NAV ₹200): You get 50 units

Both investments are worth ₹10,000. The number of units doesn't matter. What matters is how much those units grow in value over time.

High NAV Does Not Mean Overvalued

A fund with NAV of ₹500 isn't “expensive” or “overpriced.” NAV is a reflection of how long the fund has been around and how it's performed. Older funds that have grown steadily will have higher NAVs. That's not a problem.

NAV Level Does Not Predict Future Returns

A ₹50 NAV fund doesn't have “more room to grow” than a ₹250 NAV fund. Future returns depend on how the fund's holdings perform, not on the current NAV level.

The confusion arises because NAV resembles a stock price, but it represents something entirely different.

NAV applicable at the time of purchase:

When you invest, units are allotted based on the applicable NAV, which depends on the scheme type, cut-off time, and when the investment amount is credited to the fund house.

• All schemes other than liquid and overnight funds generally follow same-day or next-business-day NAV, depending on whether the investment is received before or after the cut-off time.

• Liquid and overnight schemes typically follow a T-1 NAV when both the application and funds are received before the cut-off time.

NAV applicable at the time of redemption:
When you redeem, you sell units at the NAV of that day. If NAV has risen to ₹60, your 200 units are now worth ₹12,000.

Why timing NAV entry rarely improves outcomes:
Some investors try to wait for NAV to “dip” before buying. You're not trading a stock. The NAV will rise and fall based on market movements, not demand for the fund.

What matters for NAV for SIP investments? If you're doing a SIP, you're buying at different NAVs every month - high, low, in between. Over time, this averages out.

Here's what drives returns.

Percentage Returns vs Absolute NAV

• If a fund’s NAV grows from ₹100 to ₹120, that’s a 20% return.

• If another fund’s NAV grows from ₹500 to ₹600, that’s also a 20% return.

The absolute NAV is irrelevant. The percentage growth is what matters.

Portfolio Quality and Fund Consistency

What does the fund hold? Is it well-diversified? Has it managed risk well during downturns? That's more important than whether the NAV is ₹40 or ₹400.

Long-term performance across market cycles tells you more than today's NAV ever will.