Looking for what is nav in mutual funds everything you? Here is everything you need to know.
NAV (Net Asset Value) is the per-unit price of a mutual fund scheme, calculated daily after market close. Understanding NAV is fundamental to mutual fund investing, yet it’s one of the most misunderstood concepts — particularly the myth that a fund with lower NAV is “cheaper” or a better deal. Let’s clear all the confusion.
What Is Nav In Mutual Funds Everything You: How NAV is Calculated
NAV = (Total Market Value of All Securities Held + Cash – Liabilities) ÷ Total Number of Outstanding Units. For example, if a fund holds securities worth ₹100 crore, has ₹5 crore in cash, ₹1 crore in liabilities, and 10 crore outstanding units, NAV = (100 + 5 – 1) / 10 = ₹10.4 per unit. NAV is updated at the end of each business day.
The Low NAV Myth
Many investors believe a fund with NAV of ₹20 is “cheaper” than one with NAV of ₹500 — this is completely wrong. A mutual fund’s NAV is like a stock’s share price in that lower doesn’t mean cheaper. What matters is the percentage return, not the absolute NAV. A fund growing from ₹500 to ₹600 (20% return) is identical in performance to one growing from ₹20 to ₹24 (20% return). Your investment of ₹10,000 grows to ₹12,000 in both cases.
Why NFOs Aren’t Bargains
New Fund Offers (NFOs) launch at ₹10 NAV, which tricks many investors into thinking they’re getting a “bargain.” This is the low NAV myth in action. A new fund at ₹10 has zero track record, while an existing fund at ₹500 NAV with 15 years of proven performance is far more reliable. Never choose a fund based on NAV level — choose based on performance, consistency, and expense ratio.
When NAV Matters
NAV matters for: determining how many units you receive (investment ÷ NAV = units), calculating your returns (current NAV vs purchase NAV), SIP execution (each installment buys at that day’s NAV), and tax calculations (purchase NAV determines your cost basis). For all these purposes, the absolute NAV level doesn’t indicate whether a fund is good or bad.
What happens to NAV when a dividend is declared?
When a mutual fund declares a dividend (now called IDCW — Income Distribution cum Capital Withdrawal), the NAV drops by exactly the dividend amount. If NAV was ₹50 and a ₹5 dividend is declared, NAV becomes ₹45. This is NOT free money — it’s your own capital being returned. Growth option is almost always better than IDCW for wealth creation and tax efficiency.
How NAV Is Calculated
The Net Asset Value of a mutual fund is calculated daily using a simple formula: NAV = (Total Value of All Securities + Cash – Liabilities) / Total Number of Units Outstanding. For example, if a fund holds stocks worth ₹500 crore, has ₹10 crore in cash, owes ₹2 crore in expenses, and has 50.8 crore units outstanding, the NAV is (₹500 + ₹10 – ₹2) / 50.8 = ₹100 per unit. SEBI mandates that fund houses calculate and publish NAV by 11 PM every business day.
The Biggest NAV Myth: “Low NAV = Cheap Fund”
Many investors believe a fund with NAV of ₹20 is “cheaper” than one with NAV of ₹500, and therefore a better buy. This is completely wrong. NAV is simply a price per unit — it tells you nothing about whether the fund is expensive or cheap. A ₹20 NAV fund launched last year and a ₹500 NAV fund launched 15 years ago could both grow at the same 12% going forward. What matters is the percentage return, not the NAV level. Buying a ₹20 NAV fund doesn’t give you “more units” in any meaningful sense — 100 units at ₹20 (₹2,000 invested) and 4 units at ₹500 (₹2,000 invested) will both give you exactly the same 12% return on your ₹2,000.
How NAV Changes Affect Your Investment
When you invest via SIP, the number of units you receive each month depends on that day’s NAV. Lower NAV means more units; higher NAV means fewer units. Over time, this creates a rupee cost averaging effect — you automatically buy more units when markets are down and fewer when markets are up, resulting in a lower average cost per unit than the average NAV during your investment period. This is a key advantage of SIP over lump sum investing in volatile markets.
NAV vs Returns: What Really Matters
When comparing mutual funds, completely ignore the NAV and focus on: CAGR (use our CAGR calculator) for lump sum investments, XIRR (use our MF returns calculator) for SIP investments, expense ratio (lower is better for similar funds), and risk-adjusted returns (Sharpe ratio). Two funds with very different NAVs can deliver identical returns — the NAV simply reflects the fund’s history and age, not its future potential.
Bottom Line: Whether you’re a first-time investor or looking to optimize an existing portfolio, focus on your financial goals first and choose instruments accordingly. Don’t let fear of market volatility keep you from equity — over 10+ years, equity has consistently outperformed all other asset classes in India. Start today using our SIP Calculator.
In summary, understanding what is nav in mutual funds everything you helps you make smarter financial decisions and build long-term wealth.
References: Amfiindia.com
Source: amfiindia.com
