What Is NAV in Mutual Funds? Why a “Cheaper” NAV Doesn’t Mean a Cheaper Fund

NAV, or Net Asset Value, is the per-unit price of a mutual fund scheme. It’s calculated by taking the total value of everything the fund holds (stocks, bonds, cash), subtracting the fund’s liabilities and expenses, and dividing that figure by the total number of units outstanding. Every mutual fund transaction, buying or redeeming units, happens at that day’s NAV.

Indian mutual funds calculate and publish NAV once a day, after markets close, based on the closing prices of the securities the fund holds. Unlike a stock, whose price moves continuously during market hours, a mutual fund’s NAV is fixed for the day and only updates the next business day.

The most common NAV myth

A large number of new investors assume that a fund with a NAV of ₹20 is “cheaper” or offers better value than a fund with a NAV of ₹200, the same way a lower stock price might feel more accessible. This is incorrect, and it’s one of the more persistent misunderstandings in retail investing.

NAV is simply a per-unit price, not a measure of value or past performance quality. A fund with a ₹20 NAV and a fund with a ₹200 NAV, investing in an identical portfolio with identical returns, will grow your money by exactly the same percentage regardless of which one you bought. What matters is the fund’s percentage return over time and how it’s invested, not the number attached to a single unit.

Why a new fund’s NAV starts at ₹10

New Fund Offers (NFOs) typically launch units at a NAV of ₹10, which is an arbitrary starting point set by regulation, not a reflection of the fund being newly discounted or a bargain. A fund’s NAV rises over time as its underlying investments gain value (or falls if they lose value), which is why older, well-performing funds often show NAVs well above ₹10, ₹100, or even ₹1,000, simply as a function of time and compounding, not because the fund itself became more “expensive” to buy into.

How NAV actually gets calculated

The formula is straightforward in concept: NAV = (Total assets of the fund − Total liabilities) ÷ Total number of outstanding units. Total assets include the market value of all securities the fund holds plus any cash. Liabilities include the fund’s operating expenses, management fees, and any payables. This calculation happens at the end of every business day across every open-ended mutual fund scheme in India, and SEBI mandates that fund houses disclose it publicly, typically by 11 pm the same evening for most categories.

What actually moves a fund’s NAV

NAV moves with the value of the fund’s underlying holdings. If a fund holds stocks and the broader market rises, the NAV typically rises too, proportional to how those specific holdings performed, not the market as a whole. Dividends or interest the fund receives from its holdings, if reinvested rather than paid out, also get reflected in a rising NAV over time. Conversely, when a fund pays out a dividend to unit holders (in a payout option), the NAV drops by roughly the dividend amount on the record date, since that cash has left the fund and gone to investors.

When you actually see NAV applied

If you place a mutual fund purchase or redemption request before the cut-off time set for that scheme category (commonly 3 pm for most equity and debt funds), you get that same day’s NAV. Requests placed after the cut-off are processed at the next business day’s NAV. This is why the exact timing of a transaction, particularly near a cut-off, can occasionally matter for investors trying to time a specific entry or exit point, though for long-term SIP investors this timing nuance rarely matters much.

Bottom Line

NAV is a mutual fund’s daily per-unit price, useful for calculating how many units your money buys and for tracking a fund’s growth over time, but it tells you nothing about whether a fund is a good investment on its own. Judge a fund by its category, its consistency of returns relative to peers, and its expense ratio, never by whether its NAV looks like a “cheap” number.

This article is for general information and isn’t personalized investment advice. Mutual fund investments are subject to market risk; read the scheme-related documents carefully before investing.

Sources

• SEBI – Mutual Fund Regulations and NAV Disclosure Norms
• AMFI India – NAV Data