What Is NAV?

NAV = Net Asset Value
It is the per-unit price of a mutual fund.

NAV tells you:

✔ What is the current value of one unit of a mutual fund
✔ What price you will pay when buying units
✔ What price you get when redeeming units

Think of NAV as the MRP price of one unit of the fund—but unlike MRP, NAV changes daily.

How NAV Works

Every mutual fund holds certain assets:

• Stocks

• Bonds

• Cash

• Gold

• Government securities

• Derivatives

The total value of these assets changes daily.

At the end of each trading day, the fund house calculates:

Total fund value ÷ Total number of units = NAV

Example:

If a mutual fund manages a portfolio worth ₹1,000 crore, and there are 100 crore units, then:

NAV = ₹10 per unit

If the portfolio grows to ₹1,100 crore:

NAV = ₹11 per unit

The fund grew 10%, and so did the NAV.

NAV Formula (Official Formula Used by AMCs)

The formula is:

Breakdown:

• Total Asset Value = market value of all stocks, bonds, cash

• Liabilities = fees, expenses, charges

• Units Outstanding = total investor units

NAV changes because the value of the underlying assets changes daily.

NAV vs Mutual Fund Performance (Most Important Concept)

Investors often misunderstand NAV.

NAV does NOT indicate:

❌ Fund performance
❌ Fund capacity
❌ Fund potential
❌ Fund returns
❌ Whether a fund is good or bad

NAV ONLY indicates the per-unit price.
Returns depend on how the underlying portfolio performs, NOT the NAV number.

Why High NAV or Low NAV Doesn’t Matter (Critical Section)

Let’s compare two funds:

Fund A

NAV = ₹10

Fund B

NAV = ₹100

If both funds grow by 10%

• Fund A NAV → ₹11

• Fund B NAV → ₹110

Your return = 10% in both funds.

Low NAV does not mean “cheaper”
High NAV does not mean “expensive”

NAV is like cutting pizza into slices:

✔ If pizza is cut into 4 slices → big slices
✔ If cut into 8 slices → small slices

But the pizza size (portfolio value) is the same.

NAV only represents unit size, not investment quality.

When NAV Matters and When It Doesn’t

✔ NAV Matters

• When you calculate number of units allocated

• When calculating capital gains

• In STP/SWP transactions

• In NAV-based taxation

✔ NAV Does NOT Matter

• When choosing a mutual fund

• When evaluating returns

• When comparing two funds

• When estimating growth potential

Mutual fund selection should be based on:

• Fund category

• Fund manager performance

• Historical consistency

• Volatility

• Drawdowns

• Portfolio allocation

• Expense ratio

Not NAV.

How NAV Is Calculated Daily? (Step-by-Step Example)

Let’s assume a mutual fund owns:

• ₹600 crore in equities

• ₹200 crore in bonds

• ₹100 crore in cash

• ₹100 crore in other assets

Total assets = ₹1,000 crore
Expenses + liabilities = ₹5 crore
Total units = 50 crore

NAV = (1000 – 5) / 50 = ₹19.9

If equity markets rise 1% next day:

Portfolio value becomes ₹1,010 crore:

NAV ≈ ₹20.1

NAV increased because portfolio value increased.

NAV During Market Volatility (Crash Scenario)

When markets fall:

• Portfolio value drops

• NAV drops

• Units reduce in value

Example:

NAV = ₹100
Market falls 20% → NAV = ₹80

If you are investing via SIP → you buy more units at ₹80, ₹75, ₹70
This improves overall returns during recovery.

High NAV vs Low NAV – Full Comparison Table

NAV does not affect future returns.

NAV During SIP (Very Important)

When investing through SIP:

• You buy units based on the NAV on the SIP date

• Lower NAV → more units

• Higher NAV → fewer units

But overall returns depend on:

• Portfolio performance

• Market movements

• Asset allocation

NAV level has no effect on long-term returns.

How NAV Affects Lump Sum Investment

Lump sum investors often say:

“Should I buy a fund with lower NAV or higher NAV?”

Correct answer:

Choose the fund with the best portfolio—not the lowest NAV.

NAV is simply a number.
Returns depend on:

• Quality of stocks in the fund

• Fund management

• Category performance

Example:

Fund A NAV = ₹20
Fund B NAV = ₹200

If both funds grow 15%:

Fund A gains ₹3
Fund B gains ₹30

Your gain percentage remains 15%.

NAV in Index Funds (Special Case)

Index fund NAV = value of underlying index.

If Nifty rises 1% → index fund NAV rises ~1%.

NAV is like a mirror reflecting index performance.

NAV in New Funds (NFOs)

Most AMCs launch new funds (NFOs) at ₹10.

Many beginners think:

• Lower NAV = better buying

• Cheaper entry point

This is FALSE.

NFO at ₹10 is same as old fund at ₹100 or ₹500, because:

• Portfolio is built according to market prices

• NAV is only an accounting number

• Returns depend on portfolio performance

Choosing NFOs merely for low NAV is a HUGE mistake.

NAV Myths You Must Never Believe

❌ 1. Low NAV means cheaper

Low NAV ≠ cheap.
NAV just reflects unit size.

❌ 2. High NAV means expensive

High NAV doesn’t mean fund is costly.

❌ 3. Funds with low NAV give higher returns

Returns depend on portfolio, not NAV.

❌ 4. NAV goes to zero like stock price

NAV fluctuations do not work like stock price movements.

❌ 5. NAV controls future performance

Portfolio determines return—not NAV.

❌ 6. A fund with higher NAV is older and safer

NAV age does not impact safety.

NAV and Expense Ratio

Expense ratio = annual fee charged by the mutual fund.

Higher expense ratio reduces NAV growth slightly.
Lower expense ratio increases NAV growth over time.

Example:

Fund A NAV = ₹100
Expense ratio = 1%
Growth year = 12%

Effective growth = 11%

NAV at year-end = ₹111

Fund B NAV = ₹100
Expense ratio = 0.5%
Growth year = 12%

Effective growth = 11.5%

NAV = ₹111.5

Over years, small differences compound significantly.

NAV and Portfolio Turnover

Funds with high turnover ratio buy and sell more frequently, affecting:

• Short-term capital gains

• Trading costs

• NAV stability

Low-turnover funds generally show steadier NAV.

NAV in Debt Funds

Debt fund NAV changes due to:

• Interest rate movement

• Bond yields

• Duration changes

• Credit ratings

• Liquidity stress

NAV behaves differently in equity vs debt funds.

NAV in Hybrid Funds

Hybrid funds combine:

• Equity

• Debt

• Arbitrage

• Gold

NAV becomes a weighted average of all asset classes in the portfolio.

Case Study: NAV Impact on Investor Returns

Two investors buy the same fund.

Investor A

Buys at NAV = ₹20
Invests ₹10,000 → gets 500 units

Investor B

Buys at NAV = ₹40
Invests ₹10,000 → gets 250 units

After 1 year, NAV = ₹50

Investor A value = 500 × 50 = ₹25,000
Investor B value = 250 × 50 = ₹12,500

Both earned 150% returns,
even though NAV purchases differed.

Returns depend on NAV growth—not NAV amount.

NAV During STP (Systematic Transfer Plan)

When using STP:

• Units in source fund are redeemed at its NAV

• Money moves to target fund at its NAV

• Redemptions may cause short-term capital gains

NAV plays a role for tax and unit calculation—but not returns.

NAV During SWP (Systematic Withdrawal Plan)

During SWP:

• Units are redeemed at current NAV

• High NAV → fewer units redeemed

• Low NAV → more units redeemed

This matters for retirees who want capital protection.

NAV in ETFs vs Mutual Funds

ETFs have:

• Live NAV (iNAV)

• Market price (traded on exchange)

Mutual funds have:

• End-of-day NAV only

ETF price can differ from NAV due to market demand.

Frequently Asked Questions (15 FAQs)

1. What is NAV?

The per-unit price of a mutual fund.

2. Does low NAV mean cheap fund?

No. NAV does not represent cheapness.

3. Does NAV affect returns?

No. Portfolio performance affects returns.

4. How often does NAV change?

Once every trading day.

5. Is high NAV better?

No. NAV level is irrelevant.

6. Does NAV matter in SIP?

Only for unit calculation—not returns.

7. Should I choose a fund based on NAV?

Never.

8. Why do NFOs start at ₹10?

Accounting convenience, not performance reason.

9. Can NAV go negative?

No.

10. Why do two funds have different NAVs?

Different portfolios and inception dates.

11. Which is better: high NAV fund or low NAV fund?

Neither. Choose based on performance.

12. Does NAV reflect real portfolio value?

Yes.

13. Why NAV drops sometimes?

Due to market fall or expenses.

14. Can NAV be manipulated?

No. It is strictly regulated by SEBI.

15. What is AUM vs NAV?

AUM = total fund size
NAV = price per unit

Conclusion

NAV is one of the most widely misunderstood concepts in mutual fund investing. While investors often focus on NAV to judge whether a fund is good or bad, the truth is that NAV is simply a mathematical representation of the per-unit value of a fund. It has absolutely no correlation with future performance, safety, risk, or return potential.

Whether a fund’s NAV is ₹10 or ₹1,000, the growth depends solely on the performance of the underlying portfolio. What matters is the fund category, fund manager’s consistency, long-term track record, expense ratio, asset allocation, and risk-adjusted returns—not NAV.

In SIP investing, NAV helps calculate the number of units allocated. In lump sum investing, NAV simply determines how many units you get. But in both cases, returns depend on how the NAV grows—not its starting value.

Investors must shift their focus from NAV to portfolio quality. Mutual funds create wealth through consistent long-term compounding, asset allocation, and diversification. NAV is just a number.

Disclaimer

This article is for educational purposes only and should not be considered financial, tax, or investment advice. Mutual funds are subject to market risks. NAV does not guarantee performance. Investors must consult a certified financial advisor before investing. The author and website are not responsible for any financial losses arising from investment decisions made based on this content.